Hathway Datacom, one of India’s top cable feed providers (MSOs) finally posted a profit after remaining saddled with losses for several years.
The company was able to post a profit due to various factors, including a sharp fall in pay channel costs thanks to TRAI’s new tariff order and a reduction in its cable TV assets.
Hathway Datacom posted net profit of Rs 68.26 cr for the three months ended December 2019, compared to a loss of Rs 2.74 cr in the preceding three months (July-September) and a loss of Rs 57.87 cr for the same period of 2018. For the year ended March 2019, Hathway Datacom had a loss of 187.68 cr.
Hathway was acquired by Mukesh Ambani-controlled Reliance Industries last year, and one of the priorities for the new owners was to turn the company into a profit making venture.
Like other MSOs, Hathway Datacom was pushed into losses due to the tremendous investment it was forced to make when India transitioned from analog cable TV to digital cable TV. It was forced to purchase millions of set top boxes by sinking nearly a thousand crore rupees.
Reliance acquired the company, originally promoted by Rajan Raheja group, just as it was at the end of this cycle of heavy investment, allowing the new owners to focus on profitability.
The company has been aggressively reducing the assets of its cable TV business. This has also brought down depreciation costs, helping the company’s transition to profit.
The company reduced its total assets in its cable TV business from Rs 1,405 cr as of December 2018 to 888.85 cr rupees in one year.
Meanwhile, it has been investing heavily in the roll-out of fiber broadband in keeping with the convergence strategy of Reliance’s fiber broadband venture Jio Fiber.
As a result, even as assets fell on the cable TV side, the broadband business saw assets rise to 1,970 cr from Rs 1,102 cr a year earlier. However, they tend to have longer operating lives than cable TV equipment.
On an overall basis, depreciation and amortization costs — related to the wearing out of its equipment — fell by about Rs 9 cr from last year and by about Rs 31.5 cr compared to the previous (July-Sept) quarter.
TRAI ORDER
The second factor that helped lift the company into profitability was lower pay channel costs, which helped the company save a whopping Rs 25 cr compared to the same period of the previous year.
During October-December quarter of 2018, the company was paying broadcasters based on long-term, negotiated basis. After the introduction of TRAI’s tariff order in early 2019, the company was able to pay broadcasters based on the number of subscribers who activated a channel.
TRAI’s tariff order prevents broadcasters from demanding more from any player, and requires them to charge the same rate whether it is Hathway or Tata Sky.
Cable operators have lauded the new system, pointing out that it has leveled the field so that everyone — big or small — have to pay the same amount to pay channel owners.
Hathway’s pay channel costs during October-December 2019 fell to Rs 139.56 cr from Rs 164.55 cr during the same three months of 2018. This is despite an increase in overall operating revenue by nearly Rs 50 cr.
As a result, the company was able to post a pretax profit of Rs 51.47 this time, versus a loss of Rs 57.88 cr last year.