Ortel Communications

Over-dependent on Odisha

This cable TV operator does not have much growth record to show

CM RATING

30/100

Ortel Communications, promoted by Baijayant Panda,. Jagi Mangat Panda, Panda Investments Pvt. Ltd. and UMSL, is a regional cable television and high speed broadband services provider focused on Odisha, Chhattisgarh, Andhra Pradesh and West Bengal.

The company commenced business in 1995 and, currently, its business is broadly divided into :- 1) cable television services comprising of (a) analog cable television services; (b) digital cable television services including other value added services such as HD services, NVoD (Near video on demand), gaming and local content; 2) broadband services; 3) leasing of fibre infrastructure; and 4) signal uplinking services. The company operates under brand names, "Ortel Home Cable", "Ortel Digital" and "Ortel Broadband"

Of the total revenue, about 70% come from analog services, about 20% from digital and about 11% from broad-band service. The company's average revenue per user (ARPU) per month (net of tax) is about Rs 150 from analog, Rs 190 from digital and Rs 360 from broadband.

The company has built a two-way communication network for ‘Triple Play' services (video, data and voice capabilities) with control over the ‘last mile'. It currently holds a dominant position in Orissa, with a emerging presence in three other markets, covering an addressable market of approximately five million homes (source: MPA Report, 2014).

As of June 30, 2014, the company has 3.9 lakh retail subscribers for analog cable television services, 74,213 retail subscribers for digital cable television services and 55,861 broadband retail subscribers and provisioned bandwidth of 813 mbps to the broadband corporate customers. It offer services in 48 towns and certain adjacent semi urban and rural areas with over 21,600 kilometers of cables supported by 34 analog head-ends and five digital head-ends. It uses hybrid fibre-coaxial (HFC) (combination of optic fibre in the backbone and coaxial cable in the downstream) to build its network.

Currently, the company offer up to 100 channels of regional and national programming on analog cable television platform and up to 228 channels including 4 high definition channels and 23 radio channels on digital cable television platform.

The company's business model is focused on the control over the ‘last mile' connection. Owning the end connection allows it a direct access to the cable television subscribers thereby helping to capture the entire subscription revenues paid by the cable television subscribers and reducing reliance on channel carriage fees and also enables it to provide multiple services to cable television subscribers directly, such as broadband services, which help to increase the revenue realized per customer.

The company provides data services at a speed of up to 42.88 mbps with DOCSIS 2.0 technology through its HFC network. It is in the process of upgrading its modems with DOCSIS 3.0 standard which once implemented will enable provision of broadband services at a higher speed of over 340 mbps. The company provides data service to both retail and corporate in 19 towns and certain adjacent semi urban and rural area. It has 55,861 retail subscribers and dedicated leased lines connectivity of 813 mbps to 132 corporate customers for broadband services, as at June 30, 2014.

The company also provides point-to-point fibre connectivity to corporates for their communication services by leasing its network. As on June 30, 2014, it has leased approximately 513.86 km of optical fibre cable network to certain corporate customers and has recently signed an agreement for further leasing a minimum 500 km of optical of optical fibre cable network.

The company also has a commercial teleport providing uplink services to television channels, with 9 MHz transponders space from ISRO and it currently uplink five channels from the teleport. It also has facility for uplinking through DSNG for live telecast. Teleport and DSNG services are ancillary to its business.

The company is entering capital market to raise money in the range of Rs 217 crore to Rs 240 crore by issuing around 1.2 crore equity shares (of which 60 lakh equity shares are fresh issues and 60 lakh is offer for sales by NSR – PE Mauritius LLC) of face value of Rs 10 each at the price range of Rs 181 to Rs 200 per share. Out of the total money raised, half will go to NSR - PE Mauritius LLC for its offer for sales of equity shares, Rs 67.98 crore will be used for expansion of the network for providing videos, data and telephony services, Rs 16.74 crore will be used for capital expenditure on development of the digital cable services, Rs 10.51 crore will be used for capital expenditure on development of the broadband services and rest for general corporate purpose.

Strengths

• The company controls the ‘last mile' connection. As on March 31, 2014, 88% of its cable subscriber base is on its own ‘last mile' network and the remaining is connected through LCOs (local cable operators). The control over the ‘last mile' enables to minimize any revenue loss as the company primarily collects subscription revenues directly from its customers without operating through LCOs.

• The personal computer penetration pegged at 4% at the end of 2009 is expected to reach 17% by 2015. Fixed broadband penetration in India is expected to reach 6% by Indian homes by 2023. There exist a big opportunity for cable broadband service, which has higher ARPU compared to cable business.

• With digitization being made compulsory by the regulator, most of the analog service users have to convert themselves to digital. Digitization fetcher higher margins to the company compared to analog.

Weaknesses

• The company faces competition from regional and national MSOs (multi-service operators) and other competing alternative technology platforms including DTH (direct to home) satellite television

• As of June 30, 2014, 89% of its customers are based in Odisha and its revenue was primarily derived from sale of cable television and broadband services in Odisha. Thus, it is more a of a single state dependent operator.

• The company is currently operating as an MSO on the basis of a provisional license from the Ministry of Information and Broadcasting and failure to receive the final registration or cancellation of the provisional license could materially and adversely affect the business.

• The company has incurred net losses for last 5 years or more and has had net worth erosion in the past fiscals.

• As of December 2014, the company has an outstanding debt of Rs 143.70 crore with respect to the secured facilities. There have been delays in repayment and application for restructuring of the company's debt.

• The company has not been able to grow in the last few years due to lack of funds as it is a capital intensive industry.

• Four of the group companies --- Metro Skynet, Odisha Television, Tarang Broadcasting Company and Ortel Wireless Services Private Limited --- are in the same line of business as Ortel Communications.

Valuation

The company's net sales for FY 2014 stood at Rs 128.50 crore, increased by 7%. As on March 31, 2014, 88% of the cable subscriber base is on the company's own ‘last mile' network. Out of the total revenue from operations, 59% comes from cable television subscription fees and 16% from channel carriage fees. The revenue from leasing fibre optic network services was Rs 0.78 crore and from signal up-linking services was Rs 2.89 crore. The operating profit margin expanded by 279 bps to 22.5%. The loss at net level was Rs 12.06 crore against loss of Rs 25.10 crore in FY 2013.

On annualized EV/EBITDA, Hathway Cable & Datacom is trading at 18.7 times, Siti Cable Network is trading at 23.7 times and Den Networks at 5.2 times. At a price band of Rs 181 to Rs 200 per equity share of Rs 10 face value, EV/EBITDA on lower price band for Ortel Communications works out at 19.2 times and at upper band works at 20.8 times.

Ortel Communications : IPO Highlights 

Ortel Communications: Financials