Cable television and broadband service provider GTPL Hathway’s IPO opened for subscription today with bidding to continue until 23 June. The issue will raise up to Rs 485 crore, comprising a mix of Rs 240 crore via fresh issue of shares and the remaining through an offer-for-sale (OFS) of up to 1.44 crore shares in a price band of Rs 167-170 per share with a lot size of 88 and in multiples thereof. The retail allocation will be 35% and the proceeds from the IPO will be utilised towards repayment of loans and other general corporate purposes.
Hathway Cable and Datacom Ltd will sell 72 lakh shares, 54.8 lakh shares will be offered by Gujarat Digi-Com Pvt Ltd while MD Aniruddhasinhji Jadeja plans to sell 11.3 lakh shares. Company’s promoter Kanaksinh Rana will sell 4.4 lakh shares while Amit Shah will offload 1.44 lakh shares. The book-running lead managers to the offer are JM Financial Institutional Securities, BNP Paribas, Motilal Oswal Investment Advisors and YES Securities.
Many brokerage houses have expressed concerns over the company’s future growth, citing the rapidly evolving technological environment in which the company operates and tough competition from peers.
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Angel Broking has pointed out that none of the company’s peers, including Den Networks Ltd, Hathway Cable and Datacom Ltd, Ortel Communications Ltd and Siti Cable Networks Ltd, has reported profits in the past 3-5 years. And to add to that, the share prices of these companies have decayed at a compounded annual growth rate (CAGR) of 10.11%, 22.38%, 38.50% and 2.53%, respectively since listing.
“The cable industry is already undergoing a period of weak performance and with disruptive pricing of new entrants, there is a high probability that the performance may weaken further. “Hence, we recommend neutral rating on the issue,” Angel Broking said in a note.
Amar Ambani, head of research at IIFL Wealth, said that the revenue model of the multi-service operator businesses is not promising. Though he did not give a rating or view specific to GTPL IPO, he was not upbeat about the prospects of the industry.
“For the cable business, too, there are issues due to the switch to digitization. With Reliance Jio coming in, the OTT space is also picking up. This could be a potential threat for cable operators. The profitability of the sector is weak. Also, in terms of share price, none of these companies managed to deliver decent gains since their listings,” Ambani said.
Centrum Broking said that the cable television and broadband services industry is highly competitive and needs constant technology upgradation, which makes the business capital intensive.
“It also faces risk from other distribution channels of digital broadcasting like over the top (OTT—eg. Netflix) and direct to home (DTH). This has led to broadcasting firms reporting losses in the past. Given GTPL’s weak fundamental performance, competitive intensity and high valuation, we recommend investors to avoid the IPO,” Centrum Broking said in a note.
Hem Securities pointed out that TRAI may soon auction all available spectrum of frequencies in the wireless 700 MHz band for use in the telecommunication sector. All companies allocated spectrum will carry out the transmission in those frequencies, which may lead to interference of signals and limit transmission. This may require companies to adopt technological systems to stop such interference which might adversely affect companies’ business, operations and financial condition.
The brokerage house also raised concerns over valuation saying that at the current price band valuations look high.
“At price band of Rs 167-170, company is bringing the issue at P/E multiple of around 78 on FY17 EPS of Rs 2.19/share. Company’s valuation looks expensive at current level. Hence we recommend “Avoid” on issue,” Hem Securities said in a research report.