Sunday 25 October 2015

Hinduja Ventures Ltd: High Unused Bandwidth

I have covered most of the technical details of the business of Hinduja Ventures in the earlier post on it. It has already touched 450 from last recommendation at 396. I am just pasting the old analysis again to get the complete picture.

(It is one of the biggest player in digital cable tv (Incable) and invested huge amount in next generation cable tv via satellite, HITS via name NXT Digital. MSO like Siti, Den, Hathway, Incable are still far away from realizing the full benefit of digital cable tv. People are thinking that with digitization now they are getting full revenue from Local cable operators, but it is not the case, LCO are still paying them Rs. 60-80-100 per connection (earlier it was around 30-40) and retaining the balance. Fight is still on to decide who will bill the customer and the revenue sharing. So just hold your stocks of these MSO’s as we will see the real benefit coming in the future when a more logical deal will be stuck between both.

Hinduja has launched HITS via NXT digital for catering to phase 3 of digitization covering around 5 cr subscribers by Dec-2015. Phase 3 is related to small cities (phase 4 will cover most of rural india by Dec-16) where small Local cable operators work and they lack funds to move towards digital cable from analogues. They would need huge money for digital move for having digital access system, conditional access system and subscriber management system apart from expensive hardware. HITS can save all these costs for them…so chances are big that HITS can give DTH a run for its money as DTH falters in rain, DTH can’t show local channels which are a must in small cities. Even small Goa has 13 local Konkani channels.

Actually in TV broadcasting what happens is that a TV channel like Colors uplinks its signals to a satellite. An MSO like Den downlinks the channels signals from different broadcasters from different satellites at a place in a geography (take Bhopal in MP) which is called Headend ( huge cluster of dishes, a single dish for every channel) where they are bundled together and transmitted to LCO via cables who then distributes the same to our homes. But a single Headend cannot serve entire country due to cable costs, signal weakness etc so MSO have to install Headends in the entire country ( Hinduja has around 40 Headends) which is very costly.

However in HITS things are done in a different manner, here HITS operator downlinks the channels from all broadcasters at a single earth station from where signals are uplinked to a satellite used by HITS operator, so it is called Headend in the Sky, HITS. The HITS satellite further downlinks the signals directly to LCO or MSO, who will need just one Dish type transmodulator to transmit the signal directly to consumer via cables. So need for costly Headends will be reduced greatly which will benefit both the LCO/MSO and customers. HITS operator will also handle the Conditional access system and subscriber management system on their behalf which are also very costly and there is no need to install them at every Headend as in the case of a normal MSO. I am sure this HITS can compete with DTH in phase 3 & 4 of the digitization in india.

I will cover more details on HITS later on but just today read that Hinduja has already acquired 10 lac customers in first 3 weeks of the launch. )

Its MSO business and new age television broadcasting business HITS can target huge untapped potential and become a big force. Its MSO business under the brand name of Incable with around 10 million subscribers and around 600 cr revenues is a stable business which was a profitable one continuously in the past before digitization drive in which Incable like other MSO’s have invested high amounts for providing STB’s at subsidized costs resulting in losses in past 1-2 years. Its HITS business which is operated under its another subsidiary Grant Investrade Ltd (GIL) is in its initial phases but Hinduja group has high expectations from this business and they are planning to invest around 5000 cr in next 1-2 years according to the response generated. They have already invested around 500-600 cr. They have already launched their HITS platform via brand name NXT Digital in Phase 3 of the digitization and got around 10 lac subscribers in the first 2 months of launch.

NXT Digital will offer around 500 channels in MPEG 4 format and the number of channels will be increased to 1000 with set top boxes with recording facility. MPEG-4 allows a service provider to use less bandwidth for video transmission into the home, freeing up bandwidth for other things, including more HD channels, more VoD capacity, and better broadband Internet — all important attributes to have in a competitive marketplace. 

They are expecting to get around 10 million subscribers for HITS in next 2 years. Earlier many biggies like zee via Siti cable tried their hands in HITS but only to taste failure. But now scene is different with different challenges as at that time there was no DAS system, no mandatory digitization which would make MSO and LCO to opt for a bit costly HITS although it was a great reply to DTH competition. So now I feel that HITS has all the foundations ready and it can really taste the success this time.

But in spite of these two very promising businesses, Hinduja ventures is way undervalued than most of its peers like Siti ( I am having it from 8/-), Den, Hathway. The first reason is the big investments in the books of HVL, in fact these are valued much more than the current market value of HVL of Rs. 900 cr. Lets add these investments:

A.  Shares of Indusind Bank: it is holding 2960196 numbers of shares of another group company Indusind bank. At the current prices these are valued around 285 cr. It is also holding 13416 nos. of shares of other group companies like Gulf oil and Gulf Lubricants; but I am leaving these due to small size. Another holding of 6957580 shares of Indusind Bank is pledged with banks for taking loans which are valued at around 626 cr. So total holding is 285+626=911 cr.

B.     Holding in Hinduja Leyland Finance Ltd: It is the financing arm of Ashok Leyland. Its net profit in 2014-15 is 111 cr up from 81 cr in 2013-14. So taking the growth factor and Ashok Leyland being 2nd largest player in trucks, I am valuing it conservatively at 20 times, making it a 2200 cr company. Out of around 38 cr shares, 2 cr is held by HVL so valuing it around 230 cr.

C.    Land holdings at Bengaluru and Hyderabad: it is having big land holdings of 4.75 acre and 47 acre in Hyderabad and Bengaluru respectively which are developed by a joint venture group company Hinduja realty venture. I am valuing these around 500 cr at low end.

D.     Investments in Hinduja Energy india ltd: it is having 10% share in Hinduja energy india ltd at a cost of 187 cr which is developing power plants in india. Its 1040 MW plant at Vishakhapatnam is in final stages. Due to lack of data, I am valuing it at cost of 187 cr.

E.      Cash in the books as on 31.03.2015 was 84 cr.

So by adding A+B+C+D+E, 285+626+230+500+187+84= we are getting 1912 cr which is way higher than current market value of 900 cr. Most amazingly we are getting much valuable MSO and HITS businesses for free which are in fact valued much more than this investment part.

Hinduja ventures has around 10 million subscribers under Incable.net for its MSO business (I am leaving out potential HITS subscribers just in order to be conservative). Siti cable with around same set of subscribers is valued around 2350 cr, Den with around 14 million subscribers valued at 2000 cr, Hathway with around 12 million valued at 3400 cr. All of these have around 800-900 cr debt in the books except Den with 400 cr. So we can easily take 2000 cr value for HVL’s current Incable.net business which will make the value proposition to 1912+2000=3912 cr. And it is without any value for HITS business and without giving any value for the high growth future for MSO business which will grow at high rates due to solution of problems related to billing with LCO.

So just compare the Current market value of 900 cr to our conservative estimates of around 4000 cr indicating huge unused bandwidth. It is still a good investment at CMP of 441/- and add at every fall.

(Views are personal and should not be taken as a recommendation for buying or selling a stock. Stock markets are inherently risky so kindly do your Due Diligence before investing)



29 comments:

  1. Sir, amazing analysis. Thank you very much. I went through the annual report and could not find any mention about 6957580 shares of Indusind Bank. Can you please give the source. Thanks.

    ReplyDelete
    Replies
    1. Sir, Check schedule for Stock in trade for consolidated group balance sheet

      Delete
    2. Got it. Thank you very much.

      Delete
  2. Hello sir,

    Can you share your thoughts on 'Gujarat ambuja exports' and 'IVP'.
    also eager to hear your analysis on 'Virat crane' as requested by one of our friends in the last post.
    Sir,Your take on SKM and Titan biotech latest results?

    Thanks
    Sanjeev

    ReplyDelete
    Replies
    1. Hi Dear, Sold GAEL last year at double...do not like much...Not tracking IVP. Due to extremely busy schedule, could not study Virat...but nothing exciting. SKM egg's next journey in india is still pending, so holding it tight from 10. Titan also a hold for next 2 years...no need to check quarterly results.

      Delete
  3. Sir, how about the management of Hinduja Group? I have been reading that they are not focussed.

    ReplyDelete
    Replies
    1. No major red flags...dividend history is good. one can suspect unrelated investments in Ashok leylend fin and power business of the group...but 20 cr invested in Ashok leyland Fin is now valued at 230 cr...so look good now. Nothing looks detrimental to minority. They are much better than the likes of reliance, adanis.

      Delete
  4. Hi Gurpreet , Please do advise Diwali Dhamaka stock like SKM, Tata Elxsi or Avanti etc..

    Thanks
    Sridhar

    ReplyDelete
    Replies
    1. Hi Sridhar, I think our Hinduja venture can be one like that. Also Future Consumer, Venky, VIP, EID Parry are also more than capable of giving astronomical returns....Let's see :)

      Delete
  5. May the festival of lights brighten up you and your near and dear ones . "WISH U A VERY HAPPY DIWALI" .

    ReplyDelete
  6. A very Happy Diwali My Dear...Lighten and get Enlighten...

    ReplyDelete
  7. Hi Gurpreet,

    Could you please clarify what the CTH setups boxes are and I have seen it being used in villages/small towns in past few months as a part of moving digitization. For me these looks so cheap in every aspect (costs around 1000/-) but looks like the local cable operators are advising these for moving towards digital and most of them are opting for it.

    Could you please throw some light on these boxes and if chances of mass population going for it?

    Thanks
    Sridhar

    ReplyDelete
    Replies
    1. Hi Sridhar, i think CTH is a Thai company providing pay television services. It may be providing its set top boxes in india also and due to entry level strategy these may be offered at low rates. Actually in indian remote villages/towns, cost of settop box is not the deciding factor but the reach is. Those who can reach villages cheaply will win the race. HITS and DTH are the top contenders in the game.

      Mostly indian village subscribers will opt for Free to Air channels which are offered at very low rates (80-100/- pm), So scale is the differentiator here and MSO will feel that cables may twist their necks.

      Regards

      Delete
  8. Hello sir

    Thanks for your patient analysis and replies for all the queries.
    Off late adding Garware wall ropes and Patels airtemp in a sip mode.
    would be happy to know your comments on these two companies.

    Thanks
    Sanjeev

    ReplyDelete
    Replies
    1. Hello Dear, couldn't reply earlier as was out of town. I have studied Garware when it was at 70 almost 2 years back...but couldn't buy it but some of my friends bought it and they are still holding it. No study after that...so feeling a bit constrained to buy it at 350 levels..although company is good and it is into technical textiles; an area india is yet to master.

      No study of Patels airtemp...Regards

      Delete
  9. hi sir,
    Valiant communications exporting to over 100 countries and very less market capitalization.I did not get many of the telecom products mentioned in their website.Thought you could throw some light on its business and whether investing in it is a good idea?
    Thanks for writing good articles and educating us.
    Shilpa

    ReplyDelete
    Replies
    1. Hi Shilpa, it is in my watchlist for long but couldn't study it. Thanks for reminding me. let me have a look at it and i'll come back.

      Delete
    2. Hi Gurpreet , I think u r aware of the rules implemented on BSE only stocks. A stock with 5% circuit limit can move only up-to 100% in a year
      (In addition to Index percentage) . Despite of good company , it is advisable to stay away from such scrip ? Or do u think companies can list in NSE too by not having much complex paper work ?

      Thanks
      Sridhar

      Delete
    3. Hi Gurpreet , For Valiant - Just curious that if the company is exporting to more than 100 countries why the revenues are around 10 cr. Could u please shed some light. Thanks

      Delete
  10. Hi Sir,

    Do you think Zee learn is a good buy at cmp after its merger plans with tree house,

    thanks

    ReplyDelete
    Replies
    1. Dear, i am holding it from 18 and then 32...recommended at this blog also. It is a concept stock for much long term based on the structural shift in indian education. I have not read much about the merger although i have always found the profitability ratios of Tree house as unreal. Also i am unable to see any synergy out of merger. If it happens, it will be more like demise of another. Both can not walk together.

      Zee learn is progressing well in the market...i can't say about the happening of the news but if it don't, it will fall. So you can buy it...but be ready to buy more at every fall.

      Regards

      Delete
  11. Hi Gurpreet

    Could you please help understand the below article on how Hinduja is raising 5000 cr to invest in HITS.The below article shows , the Indus bank raised 5000 crores successfully through QIP . However it says
    "The Hinduja Group-controlled bank offered a little over 5.1 crore shares to institutional investors in a price range of Rs 835-867.15 per share, fetching about Rs 4,258-4,422 crore. In addition, the company sold 90 lakh shares to founders which may fetch about Rs 751-780 crore. The final price was not fixed at the time of this report going to print."
    Does it mean the money is not raised through "Debt" and selling their holding , correct ? It still has the Indus shares after this transaction as mentioned above , correct ?

    http://www.financialexpress.com/article/industry/banking-finance/indusind-bank-raises-r5000-cr-as-qip-subscribed-2x-proceeds-to-bolster-car/90617/

    Thanks
    Sridhar

    ReplyDelete
    Replies
    1. This is not for HITS but it is for raising capital for Indusind banks as banks are required to maintain a healthy capital rate relative to the growth in loan book.

      This QIP has nothing to do with Hinduja Ventures and HITS.

      Delete
  12. Sir, whats your vie on Q2 result and announcement of stake sale of ICIL and finding buyer for stake sale of hinduja energy 15% stake of Hinduja Venture?

    ReplyDelete
    Replies
    1. Hi Dear, Kindly append your name with your message.
      Valuations given to IMCL are as per my estimate of 2000 cr which is good and it clearly shows the potential of value unlocking when current market cap of the company is just 1100 cr with some highly valued investments under its belt. I think we will see the IPO of IMCL in the near future. IPO of Ashok Leyland Finance is already underway. But the main catalyst will be the performance of its HITS business and I hope to see it starting this year itself.

      Hinduja Energy should be valued much more than the 187 cr as it is into long term power sale agreement. I tried to find the balance sheet but website of Hinduja energy was giving an error message. But hope to see good valuation here.

      Regards

      Delete
  13. Hi Gurpreet, Are you still tracking Hinduja Ventures? If so can pls tell in case you have come across any update on HLF IPO... further...
    http://hindujaleylandfinance.com/documents/investorzone/hlfannualreport2017.pdf HLF has a 100% sub Hinduja Housing finance.. this may be a good candidate for demerger...

    ReplyDelete
    Replies
    1. Hi Suneel, Hinduja Housing has just begun its operations at the end of 2015 so at present the scale is not that much to think about the demerger but HHFL will benefit from the vast scale of the operations of its parent HLF there is no doubt about this as HHFL can expand its reach in India in no time. It is focusing on Tier-II and Tier-III cities to finance the housing needs of self-employed persons which is a relatively not covered much by other traditional housing finance avenues like Banks due to relatively risky than salaried people.

      However, the stake of Hinduja ventures in HLF is around 5.3% which is not that big to conclude the same sometjing strategic for the future of the company. My main reason for investing in Hinduja venture was its digital cable tv business especially HITS. HITS has so far entered in 640 districts in India. For me one of the most significant event was the entry of NXT Digital in Fastway dominated Punjab which had the backing of earlier SAD state government but now losing to other MSO’s like NXT.

      Delays in digitization especially in phase-3&4 along with demonetization has adversely affected the MSO’s. Also, in spite of the official closing of analogue signals in Mar-17 in phase-4, still some 30-40% operators are using analogues signals. Phase-4 with around 9 cr subscribers can be a game changer for HITS. But high competition and lood bath due to entry of Jio and the likes of Netflix may lengthen the road to profitability and topline growth. But still keeping in view the financial clout of the Hinduja group we can expect it to last the final lap of the race.

      Regarding the IPO of HLF, as far as I know they have deferred their plans for the IPO post industry slowdown after demonetization; in fact they have gone for internal funding in which Hinduja ventures has also participated.

      Delete
    2. Thanks for the detailed reply.

      Delete