Hathway feels the heat as telcos gobble up wireless broadband market

Broadband business in India may be at an inflexion point. With low penetration and scope of data consumption growth as India has among lowest data penetration among the developing market economies. Sky seem to be the limit for broadband services providers, but the dynamics of the industry seem to be changing as the incumbent players seem to be feeling the heat of disruption.

The wireless broadband business in India, led by the Rajan Raheja-owned Hathway Cable & Datacom Ltd., may be heading for a downhill ride. Recent data suggest that broadband penetration in India increased to 27.3 per cent in October 2017 from 25.9 per cent in September 2017, which translates into net addition of 15. 3mn subscribers. Interestingly, telcos have been the biggest beneficiaries, led by Mukesh Ambani's Reliance Jio.
According a research conducted by Citi in Dec 2017, broadband subscriber base of telcos grew by 15 mn as of October 17, with Jio leading the pack with 7.3mn new subscribers, followed by Bharti (4.6 mn) and the Idea-Vodafone combine (3.9 mn).

Being the leader of the pack, the heat is clearly visible on Hathway, which holds 52 per cent share of the total MSO cable broadband market in India. The September quarter saw broadband subs growing from 0.66 m to 0.69m (QoQ) as it saw net additions of 30,000 subscribers. Net subs additions for the past three quarters have been in this range, as competitive activity from wireless players continued to remain high. And it I not just about the subscription base; broadband players have also seen a steady decline in their average revenue per user, or ARPU, which is down to Rs 717 from Rs 730 on a quarter-on-quarter basis. Industry watchers say the trend is likely to continue for a while, as established players cut tariffs to retain long-term subscribers.


In a conference call after the September quarter numbers were released, Hathway's management had indicated that it does not expect any increase in ARPU over the next 18 months. According to Ambit Capital, Hathway's broadband business is likely to generate a mere 6 per cent post-tax RoIC, despite generating a robust 39 per cent EBITDA margin, thanks to high capital intensity.

Quite obviously, cable business stocks have been laggards in the bull-run on Dalal Street. The Hathway Cable stock has seen an erosion of around 43 per cent in its market value, at a time when the benchmark Nifty gained almost 32 per cent.

Analysts say the increasing reach of internet broadband, backed by an aggressive tariff play by telcos, could sound the death knell for the business. Rohit Dokania, Research Analyst at IDFC Securities, says Hathway's underperformance may be linked to the lack of increase in net realization across business verticals. Mr Dokania, however, acknowledges that Hathway's execution rate on the wireline broadband side among the best in the MSO pack. Another area of concern could be the high net debt ratio, which has been on a steady rise because of the high capex involved in the broadband business.