Wire & Wireless Limited: A Scam or A Story?

W&W was at 8.41 on 24th May 2012. Yesterday it touched 24.2. A price appreciation of 188% in a matter of hardly 3 months. The prices have been constantly going up for the stock. Lets see what has been the driving force behind it.



 Screen clipping taken: 8/17/2012, 8:17 PM
Price appreciation along with the increase in volumes (the red and green towers) indicate that more and more people are taking interest in the stock. But after an appreciation of over 200% in 1 year, is there any juice left in the stock?




W&W is an Essel Group (Remember Zee Channels, ICL, IVRCL) company and one of India's largest Multi System Operators (MSO). An MSO simply means a cable company and since most of the cable companies run cable systems in more than one communities, they are called as MSO.


It has a market capitalization of 1024 Cr as of today. So, in 3 months the company's market cap has almost tripled!


The story goes on like this : There is a wave of cable digitization that is to happen in the country starting with the four metros and then spreading on to other parts of the country. TRAI (Telecom Regulatory Authority of India) is in charge of it to ensure that a smooth transition takes place where the agreements between the major stakeholders, Broadcasters & MSOs and Local Cable Operators (LSOs), are such that it creates the maximum value for the end users. Like several other ambitious projects, this has also been delayed and pushed ahead with a new deadline, time and again. Earlier, it was all set for a June 30 release but at the eleventh hour the deadline was pushed to an October 31st rollout. The reason expressed were something like this:


"The assessment of ground realities indicated that smooth transition from analogue regime to digital regime wasn't possible because seeding of set top boxes (STBs) in cable viewing households was not satisfactory. This compelled the Ministry of I&B to set a new deadline ." (Moneycontrol.com)


Apart from that, the other reason was the delay in the announcement of tariff guidelines and other necessary rules and regulations related to interconnections. So, when the deadline started to approach quickly, the players were not ready. Now, it is expected that come 31st October, the country will be ready to move from a massive analogue regime to an ever-advancing digitized regime.


So, basically the company is riding on this expected outcome. But the event is atleast 3 months away from now and so much of expectations have already been built up in the stock. How big is the earnings expectations from it?
Before looking at what Digitization is promising us, lets have a look at the quarterly results of the company. The company posted a revenue of Rs 75 Cr for the quarter ended June 30 and bore a net loss of Rs 13.51 Cr. In the previous quarter, it had posted a net loss of Rs 20.17 Cr! In fact, the company hasn't made any profit in the past 5 Quarters!


Then, Digitization must be a game changer.


The benefits of Digitization are better reception, better synchronization of sound and picture and an over all richer user experience. Subscribers can choose their channels on a la carte basis. But it involves a huge cost and which is why only the big and mighty have taken the leap.
The size of the TV industry in India has grown at the rate of about 12.2% p.a. since 2007.





We are the 3rd largest by pay-TV subscriber numbers in the world, next only to China and US. And the penetration of digital TV is only 36% in the country, so far. Digitalization is expected to bring addressability into the
system, superior viewing experience and value added services (VAS) which in effect would have a positive bearing on the ARPU, which today is one of the lowest in the world.


Television has three major streams of revenue (the approximate contribution of each is mentioned in brackets):
1. Subscription Revenue (63%)
2. Advertisement Revenue (33%)
3. Television Content (4%)


The subscription revenue is what you pay to your local cable operator (LSO). This is shared among the broadcaster, the MSO and the LSO. There are more than 50,000 LSO in India while there are more than 7000 MSOs and 6 DTH operators. The top 5 in the MSO industry hardly account for 1/3rd of the total revenue as most of it, upto 75%, is gobbled up by the LSO through under-reporting of subscriber numbers. With digitization, this will change dramatically and the role of the LSOs will either be tragically terminated or drastically reduced. This will lead to a huge realization of revenues for the established players of the industry.


A report by IDFC suggests that there will be 86 million digital homes by 2015 - 4 times today's number! This would convert into an incremental revenue realization of as high as 50% from current levels.
Smart investors have already gauged the next big thing. Thus even if the highly taxed (as high as 40%) and inefficient industry is posting losses after losses each quarter, the companies are being lapped up for the day when the whole of Indian Television panorama will be digitized and TRAI words "sunset of analogue transmission on the cable by December 2014" will be a reality.


At this point of time, it would be a good idea to have a look at what other stocks in the same industry have done in the past 12 months:



Stocks	1 Yr. Ago	CMP	Change%
WWIL	6.79	22.65	233.58
Den Networks	42.8	123.5	188.55
Hathway Cable	85.9	184.15	114.38
Sea TV Network	21.05	54.1	157.01