Why is Hathway Cable & Datacom Ltd falling/rising?

Recent Price Action and Market Context

Hathway Cable’s shares hit a new 52-week low of ₹9.91 during intraday trading on 23-Jan, marking a significant 12.46% drop from the previous close. The stock’s volatility was notably high, with an intraday range of ₹1.41 and a calculated volatility of 7.1%, indicating heightened uncertainty among investors. Trading volumes skewed towards the lower end of the price range, suggesting selling pressure dominated the session. Furthermore, the stock underperformed its sector, the DTH/Cable segment, which itself declined by 6.37% on the day.

The stock’s technical indicators also paint a bearish picture. Hathway Cable is trading below all key moving averages — 5-day, 20-day, 50-day, 100-day, and 200-day — signalling sustained downward momentum. Investor participation has waned, with delivery volumes on 22-Jan falling by 15.7% compared to the five-day average, reflecting reduced confidence or interest in the stock.

Long-Term Underperformance and Weak Financials

Over the past year, Hathway Cable’s stock has delivered a negative return of 32.61%, starkly contrasting with the Sensex’s 6.56% gain. The underperformance extends over longer horizons as well, with the stock down 36.66% over three years and a staggering 67.26% over five years, while the Sensex has posted gains of 33.80% and 66.82% respectively during those periods. This persistent lag highlights structural challenges facing the company.

Fundamentally, the company’s operating profits have contracted at a compounded annual growth rate (CAGR) of -35.31% over the last five years, signalling deteriorating core business performance. The latest quarterly results reinforce this trend, with the company reporting its lowest PBDIT at ₹77.41 crores and an operating profit margin of just 14.43%, both subdued metrics for a firm of its scale. Additionally, the debtors turnover ratio stands at a low 4.77 times, indicating potential inefficiencies in receivables management.

Hathway’s ability to service debt remains a concern, with an average EBIT to interest ratio of -2.51, reflecting negative earnings before interest and taxes relative to interest expenses. This weak coverage ratio raises questions about financial stability and credit risk. The company’s return on equity (ROE) is modest at 2.2%, and its average ROE over time is only 2.84%, underscoring limited profitability for shareholders.

Despite these challenges, the stock trades at an attractive valuation, with a price-to-book ratio of 0.4, suggesting it is priced at a discount relative to its peers’ historical averages. Profits have risen by 13.8% over the past year, and the PEG ratio stands at 1.2, indicating some growth potential relative to price. However, these positives have not been sufficient to offset the broader negative sentiment.

Investor Sentiment and Market Position

Investor confidence appears muted, as evidenced by the absence of domestic mutual fund holdings in Hathway Cable. Given that mutual funds typically conduct thorough research and hold stakes in fundamentally sound companies, their lack of participation may signal discomfort with the company’s business prospects or valuation. This lack of institutional support further weighs on the stock’s performance.

In summary, Hathway Cable & Datacom Ltd’s share price decline on 23-Jan is a reflection of its weak long-term fundamentals, poor profitability metrics, and subdued investor interest. The stock’s technical weakness and sectoral headwinds compound these issues, resulting in continued downward pressure on the price.

Investors looking at Hathway Cable should weigh the company’s attractive valuation against its weak operational track record and financial health. The stock’s persistent underperformance relative to the Sensex and its sector peers suggests caution, especially given the lack of institutional backing and deteriorating profitability metrics.

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