Limited impact of note ban for cable operators

Hathway, Den, Siti have already seen improvement in collections

Demonetisation is likely to have a lesser impact on multi system operators (MSOs) or cable service operators like Hathway Cable Datacom, Den Networks and Siti Networks. Consumers are unlikely to discontinue a cable connection, though some might migrate to lower priced packages, say experts.

Abneesh Roy of Edelweiss Securities says, “There could be some delay in payments, which could push up receivables. We believe subscriber additions, too, could moderate, particularly in the second half of this quarter.” He believes the pain is transient, and companies have started seeing some improvement. Things should return to normalcy by February, he adds.

Anecdotal evidence suggests consumers might have flushed out the cash (banned notes) with them by making advance payments to MSOs. So, there might be less of an impact on receivables. However, these are unconfirmed reports and more clarity likely only when the companies announce their December quarter results. Though demonetisation impact on their business is likely to be similar, companies’ stocks have moved in divergent directions since the note ban.

Since demonetisation, shares of Hathway and Siti have gained 11 per cent and six per cent, respectively. However, the Den scrip has fallen 16 per cent, compared to a seven per cent fall in the S&P BSE 500 index. This can be explained by the fact that Den’s performance in the September quarter (Q2) was below the Street’s expectation. This was followed by earnings downgrades from brokerages, also partly to factor in the changes arising out of adoption of new accounting standards.

Additionally, revenues of Den’s TV commerce business — ‘Den-Snapdeal TVShop’ have halved since demonetisation and would be an additional pressure point on profitability, believe analysts. Though this business achieved break-even in Q2 and posted a profit of ~1 crore, its sustainability will be the key.

Timely implementation and monetisation of phaseIII of digitisation would be a key catalyst for financial and stock performance of MSOs. The broadband business is also seen as a growth engine. “Hathway’s broadband execution is picking up steam, making it ripe for value unlocking, once the business is demerged in a 100 per cent subsidiary,” says Rohit Dokania of IDFC Securities. In the September quarter, Siti witnessed healthy growth in the broadband business and Den achieved break-even. While these are strong triggers, effective execution of these strategies and continued high competitive intensity, particularly from direct to home companies, remain monitorables.