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GTPL Hathway IPO opens: Should you subscribe?

Given GTPL's weak fundamental performance, competitive intensity and high valuation, the research house recommended investors to avoid the IPO, Centrum said.

June 21, 2017 / 01:45 PM IST
The other IPO which also received huge responses were Happiest Minds Technologies and Chemcon Speciality Chemicals, which was subscribed 150.98 times and 149.3 times respectively. Interestingly, both these stocks have seen bumper listing gained over 100 percent. Let's see how the IPO subscription and listing happened in 2020 so far, considered only IPOs issue size over Rs 100 crore.

The other IPO which also received huge responses were Happiest Minds Technologies and Chemcon Speciality Chemicals, which was subscribed 150.98 times and 149.3 times respectively. Interestingly, both these stocks have seen bumper listing gained over 100 percent. Let's see how the IPO subscription and listing happened in 2020 so far, considered only IPOs issue size over Rs 100 crore.

 
 
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Cable TV and broadband services provider GTPL Hathway has opened its Rs 485-crore public issue for subscription on Wednesday, with a price band of Rs 167-170 per share.

It already raised more than Rs 145 crore from six anchor investors (including DB International Asia, Government Pension Fund Global, Acacia Banyan Partners, BNP Paribas Mutual Fund) on Tuesday, by alloting 85,55,294 equity shares at a price of Rs 170 per share.

The issue comprised of fresh issue of shares worth Rs 240 crore and the offer for sale of 1.44 crore shares. Fresh issue proceeds will be utilised towards repayment of loan and general corporate purposes. The issue will close on June 23.

GTPL is the number 1 multi system operator in Gujarat with a market share of 67 percent of cable television subscribers in 2015, accounting for approximately 3.7 million of 5.6 million cable television households in Gujarat, according to MPA report.

Aniruddhasinhji Jadeja, Managing Director of GTPL told CNBC-TV18 that the debt worth Rs 230 crore will be repaid through IPO proceeds and hence, the net debt will almost become nil post IPO.

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"The company is developing the G-PON technology that will keep the operational expenditure low," he said.

The management looked confident about future growth with use of latest technology that will drive earnings but analysts have negative views on company's public issue, citing expensive valuations compared to listed peers and risk attached to likely auction of spectrum of frequencies in the wireless 700 MHz band.

Hem Securities

At price band of Rs 167-170, the company is bringing the issue at P/E multi-ple of around 78 on FY17 EPS of Rs 2.19 per share. Company's valuation looks expensive at current level; hence avoid the issue.

On concerns, it said TRAI may soon auction all available spectrum of frequencies in the wireless 700 MHz band for use in the telecommunication sector. Telecommunication companies to which such spectrum is allocated will carry out wireless transmission in those frequencies, which may lead to interference of signals in the coaxial pockets of company's networks and limit its transmission to the spectrum of up to the 700 MHz frequency or require company to adopt technological systems to stop such interference.

This may adversely affect company's business, results of operation and financial condition, it feels.

Choice Broking

Based on FY16 EPS, it feels that the demand high valuation is not justified.

"Based on quick estimate for FY18, we estimate a FY18 earnings of Rs 3.5 per share and book value per share of Rs 62.4, which translates into a FY18 forward P/BVPS multiple of 2.7x, which is in-line to the peer average, thereby having little room for appreciation," it explained.

Thus it recommended an avoid rating for the public issue.

Operationally, the sector is characterised with high competition. And with the entry of big player like Reliance Jio in the broadband business, it will negatively impact the business of the companies like GTPL, it feels.

Earnings of the company are not consistent. In its three years of historical performance, in one year it reported loss, while in other two years, its earnings were very volatile.

It is operating in an industry, where most of its peers are generating loss at the PAT level. Three out of four peers are making loss and thus the research house feels that investors should stay away from the sector.

Centrum Wealth Research

Cable television and broadband services industry in India is highly competitive and requires constant technology up gradation, which makes the business capital intensive. It also faces risk from other distribution channels of digital broadcasting like over the top (OTT) and direct to home (DTH). This has led to broadcasting companies reporting losses in the past.

Given GTPL's weak fundamental performance, competitive intensity and high valuation, the research house recommended investors to avoid the IPO.

"Over FY14-16, GTPL's revenue registered a CAGR of 18 percent and EBITDA CAGR of 22 percent largely supported by reduction in cost of raw materials. However, adjusted net profit for the company looks patchy on account of high interest cost and depreciation due to capital intensive nature of the business. Return profile for the company is weak (return on equity of 5.6/1.5 percent and return on capital employed of 10.4/7.9 percent in FY15/16 respectively) and debt/equity is around 1.2x on 9MFY17 basis," it explained.

Angel Broking

In terms of valuation, GTPL's price-to-book value multiple annualised 9MFY2017 at 3.1x, as compared to peers i.e. Den Networks 1.8x, Hathway Cable & Datacom 0.7x, Ortel Communication 1.4x and Siti Networks 4.8x. The cable industry is already undergoing a period of weak performance and with disruptive pricing of new entrants, there is a high probability that the performance may weaken further.

Hence, the research house recommended neutral rating on the issue.

ICICIdirect.com

Though the company remains one of the very few profit making multi system operator, the research house remained wary of cable industry structure wherein local cable operators hold the key for

effective monetisation pass through. There is also a risk of disruption in the broadband business from Jio's foray into FTTH.

Disclosure: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.

Brokerage houses highlighted risk factors:-

1> Concentration risk (Gujarat and Kolkata together accounts for 88 percent of revenue);

2> Competitive risk;

3> Technology obsolescence risk.

4> None of the players in the cable industry within peer group (Den Networks, Hathway Cable & Datacom, Ortel Communication & Siti Cable Networks) have reported profits in last 3-5 years;

5> Presence of the Hathway in the same geography may cannibalize the potential subscribers;

6> GTPL has low asset turnover ratio and in order to remain competitive it will need to continuously upgrade technology

7> Any inability to seed set-top-boxes in Phase IV markets and acquire new subscribers may impact the future growth prospects of the company;

8> The new tariff order, when implemented, could impact future average revenue per user, pay TV economics, operational flexibility, etc. Restrictions on subscription charges may adversely affect subscription income
Sunil Shankar Matkar
first published: Jun 21, 2017 01:45 pm

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