Hathway, Den Networks Deals May Reduce Reliance Jio CapEx

Deals with Hathway and Den Networks will help Reliance Jio GigaFiber achieve last-mile connectivity, overcoming the challenges Reliance has been facing from local cable operators who stonewalled its expansion plans.

Reliance Jio Infocomm Ltd’s impending deals with Den Networks Ltd and Hathway Cable & Datacom Ltd may not only allow the company gallop to 1,100 cities and target 50 million homes with its broadband services faster, but also reduce the cost of reaching out to customers as last mile capex will not be incurred by Reliance Jio alone, said two people aware of the development. According to an Economic Times report, Reliance Industries Ltd (RIL) could buy more than a 25% stake in each of these two companies to boost its high-speed broadband network. RIL had in July unveiled its fibre-to-the-home (FTTH) broadband plans.

Additionally, deals with Hathway and Den Networks will help Reliance Jio GigaFiber achieve last-mile connectivity, overcoming the challenges the company has been facing from local cable operators who stonewalled its expansion plans.

The deal may also bring down Reliance Jio’s FTTH capex of $130-140 per subscriber which will hasten the pay-back period, according to analysts.

“The talks have been on for over a year now. As per the agreed terms, the management of both Hathway and Den Networks will continue to run the company on a day-to-day basis with RIL taking a board seat. The transaction is similar to RIL’s previous investments in Eros International Media Ltdand Balaji Telefilms,” said one of the two people cited above.

Reliance has been trying to tap the FTTH broadband segment which is largely an unorganized market controlled by smaller local cable operators and last mile operators with a direct tie-up with internet service providers (ISPs), said the second person aware of the matter.

RIL did not reply to an email while Hathway declined to comment.

Den Networks could not be reached.

“RIL has in the past been in discussions with several local and regional broadband associations to form a tie-up or a joint venture but the talks have not been fruitful,” the second person added. For both Den and Hathway, which continue to be highly leveraged, the deal is expected to augment revenue from the data business, which has been on a steady decline.

“The deal, will work in favour of all three companies involved. While for Hathway Cable, deleveraging its balance sheet is key, for Den Networks warding off increasing competition in the broadband business will bode well. For RIL, it will facilitate expansion of its broadband network. It was anticipated that RIL’s disruption in the telecom sector could have been replicated in the broadband sector,” said an analyst tracking RIL. He spoke on the condition of anonymity.

Hathway Cable, which is owned 46% by Rajan Raheja and his family, has an enterprise valuation of nearly ₹4,200 crore. The company has a debt of around ₹1,700 crore. At the end of the first quarter, Hathway had a broadband subscriber base of 0.77 million in 16 cities.

Hathway’s promoters planned to infuse capital to bolster the balance sheet. “Hathway plans to deleverage its balance sheet by ₹5 billion by end-FY20. Promoters have shown an intention to infuse ₹3.5 billion by way of equity and unsecured ICDs (₹2 billion in the first tranche and the rest in 18 months) and balance ₹1.5 billion from internal accruals,” said Dipesh Mehta, analyst, SBICap Securities.

On the other hand, Den Networks, in which Sameer Manchanda along with others holds a 36% stake, has a subscriber base of 106,000. Den plans to launch broadband services through a franchise model to counter threat from telecom companies and leverage its cable presence and relationship with last mile owners.

Till the first quarter of this fiscal, Den Networks had rolled out fixed-line broadband in 28 cities, with a monthly average rate per user or ARPU of ₹562 as part of its the 100 cities plan to tap growth opportunities across its cable presence markets.

“Den hopes that subscriber addition will gather pace as it gradually expands its presence and rolls out services across 100 cities and is confident of adding 50,000 subscribers in FY19. Den expects an investment of ₹300-400 million to roll out broadband services in 100 cities,” said SBICap Securities in its report.

Den Networks lost 1.85% to close at ₹74.25 per share on Tuesday on the BSE, while the benchmark Sensex gained 0.85% to close at 35162.48 points. Hathway gained 4.8% to ₹30.35 and RIL rose 2.1% to ₹1163.65 per share. – Live Mint