GTPL Hathway: Expensive bet on a volatile performer

ET Intelligence Group: GTPL Hathway is raising up to Rs 484 crore from the equity market mainly to reduce debt. The multi-speciality operator ( MSO) will issue fresh shares worth Rs 240 crore and offload 14.4 million existing shares through an offer for sale. The IPO is not attractive, given the high valuation and the company's inconsistent performance.

BUSINESS GTPL
Hathway is a leading MSO player in Gujarat and West Bengal. It provides cable and broadband internet services. In 2015, it had 67% market share in Gujarat's total cable television subscribers and 24% share in West Bengal. As of January 31, 2017, the company had 5.7 million active digital cable subscribers.

Nearly 35 per cent of its broadband subscribers are also cable subscribers. The company provides digital cable services to 189 towns in India. Between phases I and II of the all-India digitisation drive, GTPL's average revenue per user (ARPU) jumped to Rs 100-110 from Rs 5055. Nearly two-thirds of its subscrib ers will be covered in the remaining two phases of digitisation.

FINANCIALS
In the three fiscals to end FY16, the company's revenue grew at a CAGR of 18.5 per cent to Rs 738 crore. In the same period, net profit touched Rs 4.5 crore, after a loss of Rs 8.4 crore in FY14.

VALUATION
After annualising the company's ninemonth net profit and considering postissue equity , the company demands price-earnings multiple of around 87. This is quite expensive. Higher valuation and volatile profits are major concerns retail investors need to consider before applying for the offer.