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Hathway IPO is plagued by debt, losses, conflict of interest and court cases

Promoters hold 18% and affiliates hold 77.5% of the paid-up equity capital in Asianet, a direct competitor. There are 23 criminal cases pending against the company, its subsidiaries and promoters

Cable TV provider Hathway Cable and Datacom Ltd (Hathway) is planning to raise Rs500 crore from the capital market and its initial public offering (IPO) is opening on Tuesday. While due to prevailing market conditions, the retail investor may ignore the IPO, there are some serious issues—including conflict of interest between the company and its subsidiaries, and pending court cases.

Hathway, incorporated in 1995, is a cable television service provider which offers analogue and digital cable television services across 125 cities and towns and high-speed cable broadband services across 18 cities.

According to the draft red herring prospectus filed by the company with the Securities and Exchange Board of India (SEBI), Hathway’s promoters also hold about 18% stake in its direct competitor in the cable TV business, Asianet Satellite Communications Ltd. Besides, non-executive directors on the board of Hathway, Rajan Raheja and Vinayak Aggarwal, are also directors on the Asianet board. Mr Raheja holds 4.5% paid-up equity capital of Asianet while his affiliates hold 77.5%.

Hathway’s non-executive director, Uday Shankar, is a board member of DTH services provider Tata Sky Ltd, also a direct competitor of the company. This may create a conflict of interest.

“The company (Hathway) has not entered into any arrangement to mitigate the conflict of interest. Therefore, there may be conflicts of interest in addressing business opportunities and strategies where other companies in which Hathway’s promoters or its directors have interests are also involved,” its filing to SEBI said.

A total of 20 civil proceedings have been filed against the company, 15 against its subsidiaries, and two against its group companies. The company also has 29 tax proceedings filed against it, eight against its subsidiaries, one against its director-promoter, and eight against its group companies.

Out of the 23 criminal cases, seven criminal cases are pending against the company, seven against its subsidiaries while nine are against its promoters.

Sun TV Network Ltd had filed criminal complaints against the company and its officers for copyright violations. ESPN Software (I) Pvt Ltd (ESPN) has also lodged a first information report (FIR) in the Janakpuri Police Station at New Delhi against Surinder Dhupal for exhibiting and transmitting signals from ESPN without proper authorisation from it.

The company has consistently incurred net losses of Rs62 crore, Rs67 crore and Rs63 crore during FY07, FY08, and FY09, respectively. These losses were primarily due to depreciation and amortisation, including purchase of set-top boxes, said the red herring prospectus. As of September 30, 2009, it reported a debt of Rs458 crore on a standalone basis and Rs499 crore on a consolidated basis.

As per the red herring prospectus, Hathway wants to use the funds for customer acquisitions, capital expenditure, investment in broadband infrastructure, repayment of loans and general corporate purposes. However, the company has not entered into any definitive agreements to use the proceeds of the issue.

The issue opens on 9th February and will close on 11th February with equity shares of 2.77 crore shares at a price band of Rs240 to Rs265 a share. The managers for the issue are Kotak Mahindra Capital Co Ltd, Morgan Stanley India Co Pvt Ltd and UBS Securities India Pvt Ltd.
 

 

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COMMENTS

raj

7 years ago

Very surprised to know. Hathway IPO got better response in 2nd day itself. Whereas Den Network IPO was starving for IPO investors. Debt is always life line of business for fullfilment of working capital requirement. Hathway has better result at PAT and Turnover level. Turnover of Hathway is keep increasing. We can see from CAGR ratio of Hathway is very impressive. If you can plus turn over of all competitors, they all r not even at half way of Hathway. Set top boxes what they have in market is one of the key figure. Where as in digitalisation also they have bit many big plays. Den Network traded even lower than its issue price because they dont have business. Hathway is "SPECIALISED IN ONLY CABLE TV BUSINESS." Hathway is best Bet.

Prakash

7 years ago

Thanks for highlighting these facts to the public, though it is mentioned in the prospectus still common investor misses out in reading it. I am surprised that ET Investors Guide (which I follow quite closely) has recommended this issue to subscribe.

Watch 16,000 on the Sensex as a trigger for a short rally

Volatility ruled the day in Indian markets on the back of weak global cues

Indian markets remained highly volatile during the day following weak global cues. However, a positive opening at European markets on the possible easing of European debt worries helped Indian markets to recover.

The Sensex was up 20 points from Saturday’s close, ending the day at 15,936 while the Nifty closed at 4,760, up 3 points.

We expect the market to move sideways tomorrow. However, from here on, for the market to trigger a short rally, it should cross 16,000.

At 12:00 hrs IST, the Sensex was trading at 15,691, down 225 points from the previous day’s close. However at 14:00 hrs IST, the Sensex was up 34 points trading at 15,949.

At the end of the day, Reliance Industries remained flat on reports that the company had submitted a $2-billion expression of interest for Value Creation Inc, a Canada-based private firm which holds assets in oil sands.

Bharat Heavy Electricals rose 1% after winning a contract worth Rs1,016 crore to build a 1,200MW hydropower plant in Bhutan.

Nagarjuna Construction Company has secured five orders aggregating Rs583 crore. The stock was down 1%.

Lupin has received the US Food and Drug Administration’s final approval for its Amlodipine/Benazepril capsules. The stock was down 2%.

Madhucon Projects rose 3% after the company bagged a 75-MW hydropower project from Uttarakhand Jal Vidvut Nigam.

Sadbhav Engineering Ltd has been awarded a project worth Rs136.83 crore by Northern Coalfield (a subsidiary of Coal India). The stock declined 1%.

Areva T&D India remained flat on reports that the company has been awarded two contracts for extra-high voltage turnkey projects at the Moga (Punjab) and Bhiwani (Haryana) plants of Power Grid Corporation of India.

As per reports, the government predicted that its economic growth for the fiscal year ending March 2010 would stand at 7.2%, as against 6.7% achieved in the previous fiscal, raising fears that the government may start to unwind its fiscal stimulus in the forthcoming budget. The advance estimates of the country's gross domestic product released by the Central Statistical Organisation (CSO) today forecast a growth of 9.9% in services and 8.9% in manufacturing, the highest among the eight broader economic activities. Mining & quarrying comes next with an 8.7% expansion followed by 8.3% for trade, hotels, transport and communications, and 8.2% each for energy &water, and social & community services.

The government will announce industrial output data for the month of December 2009 on Friday, 12 February 2010. Inflation numbers for the week ended 30 January 2010 will be out on Thursday.

On Friday, 12 February 2010, stock markets will remain closed on account of Mahashivratri.

During the day, Asia’s key benchmark indices in China, Japan, Indonesia, Hong Kong and South Korea were down by between 0.14%-1.72%. However, indices in Taiwan and Singapore rose 0.04% and 0.37% respectively.

On Friday, 5 February 2010, the Dow Jones Industrial Average gained 10 points while the S&P 500 and the Nasdaq Composite were up 3 points and 16 points respectively.

According to EPFR Global, that tracks foreign inflows, emerging market equity funds lost $1.60 billion in weekly withdrawals, the biggest outflows in 24 weeks. The report further added that investors pulled out almost $1 billion from global emerging market stock funds in the week ended 3 February 2010, the most in more than a year.
 

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