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Recent run-up leaves limited room for upsides…

About the stock: GTPL Hathway (GTPL) is a leading MSO (No. 2 in terms of subscribers) offering cable television (CATV) and broadband services with a strong presence in Gujarat (No. 1), West Bengal (No. 2) and 13 other states.

* Expansion into new states and digitisation has led to strong topline and earnings growth of ~27% and ~86% CAGR, respectively over FY16-21

Q2FY22 Results: GTPL reported mixed Q2FY22 results.

* Core (Ex-EPC) revenue grew 18.6% YoY to | 589.8 crore, driven by sharp jump of ~50% YoY in broadband revenues to | 100.6 crore owing to addition of 45,000 subscribers and 36% YoY growth in cable placement/carriage revenues at | 180 crore

* EBITDA was at | 135.5 crore with margins at 22.7%, flattish YoY

* Reported PAT was at | 47.5 crore, down 4.5% YoY, owing to writeback of insurance claim of | 12.4 crore

What should investors do?

GTPL’s share price has grown by ~58% over the past five years (from ~| 179 in October 2016 to ~| 282 levels in October 2021).

* Given the sharp run up (up 108% in last six months), we maintain HOLD

Target Price and Valuation: We value GTPL at | 275 i.e. 15x FY23E P/E

Key triggers for future price performance:

* The pace of broadband segment expansion both in terms of existing markets and new market entry

* Change in pricing share between LCOs and GTPL, currently lower than peer

* Implementation and impact of NTO 2, which will have an impact on the overall channel pricing for broadcasters and, thus, their strategy ahead will impact distribution/placement for GTPL

Alternate Stock Idea: Besides GTPL, within telecom & media coverage we like Tata Communication

* Cash flow generation consistency and growth levers like cloud, edge & security, IOT

* BUY with a target price of | 1725

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