Following competitor DEN Network, cable operator and ISP Hathway Datacom has decided to go public and filed a draft Red Herring prospectus with the SEBI on January 27, 2010. Subscriptions will open on February 7 and close on February 11, 2010. DEN’s IPO received only a lukewarm response (grade 3 IPO) from the markets, will Hathway fare better?

Hathway offers analog and digital cable television services to 125 cities and towns and high-speed cable broadband services across 18 cities. Only one Multiple System Operator, or MSO as large cable TV companies are called, is listed on the BSE so far: Zee Group’s Wire & Wireless India Ltd (WWIL).

Download: Hathway’s Red Herring Prospectus

The IPO

According to IndianTelevision, Hathway had planned a $100 million IPO back in April 2008 after it received a Rs. 2.7 billion clearance from the FIPB and was planning to invest the proceeds of its IPO into expanding its digital cable network.

The company will now issue 27,750,000 equity shares worth Rs. 10 each, from a fresh issue of 20,000,000 equity shares and an offer for sale of 7,210,000 shares by Monet Ltd, 540,000 shares by MSPI Mauritius International. The company notes the issue will form around 19.43% of its post-issue share capital.

Its promoters’ holding will fall from 77.37% to 66.55% post the IPO. Note that its promoters also hold 18% stake in Kerala-based MSO Asianet Satellite Communications or Asianet, which is a direct competitor. Two directors Akshay Raheja and Viren Raheja are also directors and major shareholders of Outlook
Publishing (India) Private Limited
. A non-executive director of the company, Uday Shankar, is on the board of DTH provider Tata Sky.

The company will use the funds to acquire LCOs in existing markets, roll out digital services and expand its broadband offerings.

What Hathway Does

It currently provides analog cable TV services to eight million homes as well as Digital Cable TV services to five cities. As of November 30, 2009, it had 1,347,491 analog cable television subscribers and 1,002,482 digital cable television subscribers, comprised of 259,392 CAS (conditional access) subscribers and 743,090 voluntary subscribers.

Challenge: DTH is racing ahead and the companies offering DTH services such as Bharti Airtel (Digital TV), Tata Sky, Reliance (Big TV), Zee Group’s Dish TV and Videocon (d2h) are larger, better funded and more flexible – will cable TV survive? Hathway’s monthly churn rate is currently at 0.83% of its total subscriber base.

It also offers Broadband Internet services and had 322,135 broadband subscribers as of November 30, 2009.  The company is up against Airtel Broadband, Tata Teleservices Maharashtra (TTML)’s Power Launcher in Mumbai, Reliance and Vodafone, which has recently received its ISP license. It directly competes with private equity fund Ashmore Investment backed Digicable, DEN Networks, InCable and  WWIL.

Challenge: It is still in the process of upgrading its network to fibre co-axial cable. If it is not ready, Hathway might find itself at the end of the race. Hathway experiences an average churn rate of 1.4% per month in its broadband internet business.

Hathway also produces TV channels that are broadcast on its cable network: Cine Channel (CCC) is a movie channel; C-News is a local news one, I-TV is an interactive music channel and it also has WIN Delhi, C-Hyderabad and C- Bangalore.

Challenge: Unless it launches more unique, interactive and localised channels, subscribers may move onto other MSOs such as DEN which tied up with NDTV to offer Blog.telly.

Hathway has a strategic alliance with Star India to offer digital interactive TV – has this worked out? Competitor DEN set up a 50:50 joint venture called Star Den Media with Star India to aggregate and distribute content to its subcribers.

Poor Performance

Hathway incurred a loss of Rs.424.23 million for the six month period ended September 30, 2009. It has had a history of net losses due to significant depreciation and amortisation expenses including that on the purchase of set-top boxes which it expects to continue to increase. As of September 30, 2009, its debt were at Rs.4,578.14 million on a standalone basis and Rs.4,992.62 million on a consolidated basis.

Legal Cases

There are seven criminal proceedings that the company is fighting at the court, including one by ESPN for unauthorised transmission of its signals by Hathway, Sun TV Network for copyright infringement, Novex Communication for telecasting a film without holding a valid license, and others for spreading their cable wires and non-payments.

Broadcaster Zee Turner has decided to cut off Hathway Bangalore, claiming the MSO has not paid its dues, reports IndiaBlooms.

Related

DEN Networks To Foray Into Broadband, Acquire MSOs To Expand

DEN Networks Launches Blog.Telly On Digital Cable TV & Net; Content Tie-Ups

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