Why is Morgan Stanley overweight on Hathway Cable?
Research firm places bets on an improvement in cable TV monetisation as well as roll out plans for fixed wireline broadband services.
June 15, 2017 / 11:40 AM IST
GTPL Hathway | In FY21 so far, the stock price has gained 237 percent to Rs 137.35 as of October 14. The company's FY20 total debt reduced by 49 percent to Rs 148 crore compared to its previous fiscal year while it has witnessed decent sales and profit growth of 91 percent and 253 percent respectively.
Ahead of its subsidiary hitting the Street with an initial public offering, Hathway Cable witnessed positive movements. The stock was up nearly 3 percent intraday on Thursday as a global brokerage retained its overweight rating on the stock. The target price of Rs 49 implies 21 percent upside.
Morgan Stanley gave out its positive view on the stock based on factors of improvement in cable TV monetisation as well as aggressive roll out of the broadband business.
“The management talked about potential improvement in cable TV monetisation, especially in phase 2/3/4 markets. This process could accelerate further once the new tariff order is implemented,” analysts at the firm wrote in their research report. The tariff order calls for keeping a cap on the pricing for providing cable TV services.
Furthermore, the roll out of broadband business is more profitable and has less involvement of cable operator, it highlighted.
The brokerage house also highlighted the management’s commentary about its plans to scale up in markets such as Andhra Pradesh, Bihar, Assam and Telangana, where there are no established player. The company believes this will help it achieve dominant position.
Among key risks to the stock include, increase in competitive intensity in broadband business from wireless operators. This, it said, could affect its future growth plans. For now, the monetisation in cable TV business has been slower than expected and if it continues, the earnings estimates could see a drop.
IPO case file
Meanwhile, the company’s 50 percent subsidiary, GTPL, will be launching an IPO next week, which will help Hathway bring in cash. It plans to sell some shares in the company and reduce stake to 37 percent. It is also looking to improve visibility its earnings.