Should you invest in GTPL Hathway Ltd IPO?

Hello Friends,

We meet again for IPOs of course. I guess the Indian Markets are being blessed with IPOs this season.  Nevertheless another IPO debutante is planning to come out to the crease. The IPO we are gonna talk about today is GTPL Hathway Ltd. Now we don’t see much joint venture entering the market. So have all your experiments done with this one friends. The issue is being offered at a price band of Rs 167 to 170 with a minimum lot of 88 shares. The issue opens on 21^st June 2017 and closes on 23^rd June 2017.

About the company!!!

India went for digitization of all television connections not so long ago and since then we have seen many companies jumping into that opportunity. GTPL Hathway is also one of them.  It offers MSO i.e cable tv operations along with internet. GTPL primarily operates in Gujarat, apart from Maharashtra, Rajasthan, West Bengal, Andra Pradesh, Telangana and Assam. They are trying to expend further and reach Pan India level. As of now the company operates in over 169 cities reaching an estimated 8 million household.

Now that you know the company. Should you invest in GTPL Hathway Ltd?

Come let’s dive into this company to look at the fruits it might hold.

Utilization of Funds!!!

Well just as the company is a joint venture, I guess they decided to do a joint venture in utilization of funds as well. The issue is partly an offer for sale and partly fresh issue. Which means it’s a joint venture between the stake sale of shareholders and fresh issue.

So of the total issue Rs 300 Crs shall be fresh issue which will be available for the company to use. The company is intending to repay loans to the extent of Rs 229.67 Crs out of these proceeds. Well I guess we will have to see the financials to understand how good the company is before we jump to conclusions.

So into the Financials now!!!!

1.       The company has a net worth of Rs 465.66 Crs as on 31.03.2016 comprising of Rs 98.34 Crs of Share Capital and Rs 367.31 Crs of Reserves. However its debts as on the same day stood at Rs 238.81 Crs and total outside liability stood at Rs 724.25 Crs. This means that total debt to equity ratio comes to 1.56 times. But then again since the company is intending to reduce its debts using the proceeds of the IPO this ratio would decrease. However looking at its peer i.e DEN Networks the company’s debts are less than 0.25 times. Then again DEN is not in profits.

2.       The company has a good pile of tangible assets at Rs 564.55 Crs as on 31.03.2016 and Rs 58.17 Crs of intangible assets mostly CATV franchisee rights.

3.       The critical area here is that the company’s working capital seems to be a concern. As on 31.03.2016 the company’s debtors stood at Rs 245.27 Crs and its creditors stood at 306.91 Crs. Now again comparing with DEN networks it can be said that it’s normal for companies in this space to have such high working capital requirements.

4.       The company has practically 41 subsidiaries and 2 associates. It also has other investments in equity instruments. It has 84 partnership or joint ventures with firms. I can only imaging the nightmare to consolidate the financial statements of this company. However these investments amount to Rs 138.95 Crs as on 31.03.2016.

5.       Now coming to the profit. Everyone is interesting in a car with the maximum mileage. This company fairs pretty well when it comes to mileage. Its total revenue for the year 2015-16 stood at Rs 652.72 Crs of which Profit After Tax amounts to Rs 70.33 Crs. This is a Net Profit ratio of 10.77%. However it’s important to note that the Net Profit ratio of earlier years were not this high. The future looks promising with more and more households coming under the digitization network. Further as soon as the debts reduce the interest expenses shall also fall thereby giving higher profits.

Valuations!!!

The company being in profit has an EPS of Rs 8.24 as on 31.03.2016. So the P/E ratio comes to 20.63 times. Now hatchway is in loss and DEN is also in loss. So with whom shall I compare it with or should we consider it to be somewhat different as it’s in profit. Keeping the company on a standalone basis isolated from its peers the company does seem to be priced well.

Competition!!!

We do understand that the set up box market is not yet saturated completely but it is to be noted that there are many players in the market with many dish based cable options thereby giving tough competition to GTPL Hathway Ltd. However a major advantage this company has is that in India people still follow the conventional approach and prefer having local cables than Dish. This is an important factor that can help GTPL Hathway Ltd to expand its reach.

So the verdict on this case!!!

GTPL Hathway Ltd does looks to be a good venture with adequate profits and a good use for the proceeds from the issue. This will give its profits a better boost and should give higher returns in the years to come.

Therefore it’s a subscribe from us.

Thank you very much for joining us.

-RicherInvestor

Written by Roger Vins Herman (CA, Mcom)