An Ril-hath­way deal may be a win-win propo­si­tion for both firms

Mint Asia ST - - Mark To Market -


early July, when Re­liance Jio In­fo­comm Ltd an­nounced Jio Gi­gafiber, its fi­bre-tothe-home broad­band ser­vice, shares of ca­ble and broad­band ser­vice providers cor­rected sharply. Hath­way Ca­ble and Dat­a­com Ltd, for one, lost one-fourth of its value in just two trad­ing ses­sions.

How­ever, Hath­way in­vestors had some­thing to cheer about on Wed­nes­day, 3 Oc­to­ber, with the com­pany’s shares ris­ing nearly 10% fol­low­ing re­ports that Re­liance In­dus­tries Ltd (RIL) may buy the mul­ti­ple sys­tem op­er­a­tor (MSO) to speed up the com­mer­cial launch of Jio Gi­gafiber.

Given the re­cent de­vel­op­ments, the Hath­way promoters may be tempted to take the of­fer. Ac­cord­ing to The Eco­nomic Times, the deal be­tween RIL and Hath­way could be at a val­u­a­tion of ₹ 2,500 crore, which is at a 9% pre­mium to the MSO’S cur­rent mar­ket cap­i­tal­iza­tion. But, if Hath­way share­hold­ers ex­pect the moon, they might be disap-



Hath­way’s en­ter­prise value is at ₹ 4,000 crore, or about 11 times its Ebitda (earn­ings be­fore in­ter­est, tax, de­pre­ci­a­tion and amor­ti­za­tion). It has fairly high debt of ₹ 1,700 crore, or nearly fives times its Ebitda.

Be­sides, the com­pany’s aver­age rev­enue per user (Arpu), too, has fallen from around ₹ 740 to ₹ 690 in the quar­ter ended June 2018, and is ex­pected to re­main un­der pres­sure with Jio Gi­gafiber breath­ing down its neck.

The only sil­ver lin­ing is that Hath­way has main­tained its Ebitda mar­gin of around 43% in the broad­band busi­ness, de­spite fall­ing Arpu.

To ease the bur­den on its balance sheet, the Hath­way promoters have in­fused fresh eq­uity of ₹ 100 crore this year.

Tak­ing on the might of RIL in broad­band ser­vices will, how­ever, re­quire fur­ther in­vest­ments, along­side the abil­ity to sac­ri­fice neart­erm rev­enues and prof­its.

Need­less to say, a deal with RIL will ease pres­sures. From RIL’S point of view, its broad­band roll-out has been slower than what in­vestors had hoped for, and any help it can get with last mile con­nec­tiv­ity will be a wel­come move.

Given that Hath­way boasts 5.5 mil­lion home passes, or the num­ber of house­holds it can pro­vide con­nec­tions to in a ser­vice area, it can po­ten­tially help solve Jio’s chal­lenge with last-mile con­nec­tiv­ity.

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