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Ortel Communications
Rating
Avoid
Issue Details
Issue Opens
Issue Closes
Issue Size (| Crore)
Price Band (|)
No of Shares on Offer (Crore)
QIB (%)
Non-Institutional (%)
Retail (%)
3-Mar-15
5-Mar-15
| 217 - 240 crore
| 181 - 200
1.2
75
15
10
75 shares and in
multiple of thereof
Shareholding Pattern
Pre-Issue
Post-Issue
64.0%
51.4%
36.0%
44.7%
0.0%
4.0%
FY11
34.0
16.9
4.4
14.4
13.8
FY12
20.5
11.0
3.6
22.2
19.3
FY13
16.7
9.5
3.0
22.7
19.6
FY14
13.2
8.6
2.5
21.1
20.9
Research Analyst
Karan Mittal
karan.mittal@icicisecurities.com
Sneha Agarwal
sneha.agarwal@icicisecurities.com
Investment Rationale
Triple play with last mile connectivity and hence lower leakages
OCL claims to have an ability to provide triple play services (video, data
and voice) with last mile connectivity, though it may not launch voice
operations. The absence of the LCO channel helps it minimise its revenue
losses, control the subscriber churn, cross-sell its products.
Concerns
FY10
74.63
17.9
24.02
6.9
15.88
11.6
(2.6)
(3.54)
(1.1)
FY11
95.26
21.4
22.52
3.0
23.62
19.9
(19.0)
(19.98)
(0.2)
FY12
119.33
37.9
31.76
1.9
28.04
27.4
1.38
(16.9)
(14.18)
(0.2)
FY13
119.80
34.1
28.48
2.0
36.32
24.9
(25.1)
(20.95)
(0.1)
FY1
128.50
36.0
28.04
6.5
27.04
23.4
4.17
(12.1
(9.39
(0.3
Company Background
OCL is a regional cable television and high speed broadband services
provider focused in of Odisha, Chhattisgarh, Andhra Pradesh and West
Bengal. It has a two-way communication network for Triple Play services
(video, data and voice capabilities) with control over the last mile. The
company holds a dominant position in Odisha, with a fast-emerging
presence in three other markets, covering an addressable market of
approximately five million homes. The business is broadly divided into (i)
cable television services comprising (a) analog cable television services;
(b) digital cable television services including other value added services
such as HD services, near video on demand (NVoD), gaming and local
content; (ii) broadband services; (iii) leasing of fibre infrastructure; and
(iv) signal uplinking services. As on December 31, 2014, about 87.21% of
its cable subscriber base was on its own last mile network.
OCL currently offer services in 48 towns and certain adjacent semi urban
and rural areas with over 21,600 km of cables supported by 34 analog
head-ends and five digital head-ends. It uses HFC (combination of optic
fibre in the backbone and coaxial cable in the downstream) to build its
network.
The company serves both retail and corporate customers. As of
December 31, 2014, it had 372,979 retail subscribers for analog cable
television services, 95,295 retail subscribers for digital cable television
services and 58,277 broadband subscribers including 121 corporate
customers with provisioned bandwidth of 806 mbps adding up to a total
of 526,551 RGUs. The company has grown both organically and
inorganically through sale of its services directly to the cable television
subscribers and buyout of network equipment, infrastructure and
subscribers of other MSOs and LCOs.
Key financials
Exhibit 2: Revenues grow at 14.6% CAGR in FY10-14
200.00
150.0
100.0
| crore
150.00
100.00
119.33
119.80
128.50
95.26
0.0
74.63
FY12
50.00
FY10
50.0
FY11
FY12
FY13
FY14
FY13
FY14
Connection Fees
Page 2
30.0
24.0
20.0
17.9
22.5
28.0
25
37.9
34.1
36.0
21.4
20
15
10
FY10
FY11
EBITDA
FY12
FY13
EBITDA Margins (%)
FY11
FY12
FY13
FY14
20
(2.6)
15
(5.0)
30
(12.1)
(19.0)
(10.0)
| crore
31.8
| crore
40.0
10.0
FY10
-
(15.0)
(16.9)
5
(25.1)
(3.54)
0
(9.39) -5
(20.0)
-10
(14.18)
FY14
(25.0)
10
50.0
(19.98)
-15
(20.95)
-20
-25
(30.0)
PAT
Page 3
Valuations
Available at 20x FY14 EV/EBITDA; recommend AVOID
At the upper price band of | 200, the company is available at FY14
EV/EBITDA of 20x. The valuations look very expensive in comparison to
the peers. Hathway is valued at 19.4x FY14 EV/EBITDA. OCL is a very
small player in comparison to Hathway, which has a subscriber base of
about 11.7 million subscribers, and should be at a considerable discount
to that of Hathway. However, as that is not being the case we recommend
AVOID.
Objects of issue
The issue comprises offer for sale and fresh issue:
The proceeds of offer for sale
The funds from the offer for sale - | 120 crore based on the upper price
limit (net of issue related expenses for the selling shareholder) shall be
received by the selling shareholder (New Silk Route) and the company
shall not receive any proceeds from the offer for sale.
Objects of fresh issue
The activities for which funds are being raised by the company through
this issue, after deducting the proceeds from the offer for sale and issue
related expenses for the Company are:
1. Expansion of the network for providing video, data and telephony
services;
2. Capital expenditure on development of digital cable services;
3. Capital expenditure on development of broadband services; and
4. General corporate purposes
Exhibit 6: Objects of issue
SNo
1
2
3
4
Particulars
Expansion of network for triple play
Capex on development of our digital cable services
Capex on development of our broadband services
General corporate purposes
Total
Estimated
Amt to be
Cost
679.8
167.4
105.1
[]
[]
deployed
679.8
167.4
105.1
[]
[]
Proposed schedule
FY16
305.9
75.3
47.3
[]
[]
FY17
373.9
92.1
57.8
[]
[]
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Page 5
Financial Summary
FY10
81.49
NA
17.92
24.0
15.88
11.56
(2.64)
FY11
98.25
20.56
21.45
22.5
23.62
19.85
(19.04)
FY12
121.28
23.43
37.91
31.8
28.04
27.36
1.38
(16.92)
FY13
121.81
0.44
34.12
28.5
36.32
24.91
(25.10)
FY14
135.04
10.86
36.03
28.0
27.04
23.42
4.17
(12.06)
H1FY15
71.93
FY10
82.3
0.1
FY11
28.4
36.2
FY12
28.4
19.3
FY13
28.4
-5.6
FY14
37.3
-17.6
H1FY15
24.4
-4.1
62.7
14.0
0.9
119.7
16.2
0.7
64.3
11.5
1.1
130.3
8.6
1.2
125.5
6.9
0.3
111.6
4.0
0.3
5.1
7.1
49.1
0.0
221.3
10.0
4.8
68.0
0.2
284.2
10.0
10.2
131.1
0.1
276.0
10.0
11.2
62.8
0.0
246.9
9.7
19.6
56.9
0.0
238.5
10.0
20.4
79.8
0.0
246.3
153.0
19.8
15.9
0.3
2.8
4.4
187.4
23.5
18.4
0.3
3.8
6.7
211.3
18.0
10.5
0.3
3.0
1.8
194.9
15.1
5.3
0.3
2.5
2.7
186.1
10.6
4.9
0.3
2.3
3.8
186.9
7.9
7.6
0.3
2.2
5.9
0.2
7.2
4.4
12.9
0.4
221.3
0.3
6.3
23.8
12.9
0.7
284.2
0.2
13.1
6.3
10.8
0.7
276.0
0.1
12.8
5.9
6.1
1.1
246.9
0.1
13.9
5.5
7.2
3.6
238.5
0.5
21.7
4.2
8.6
0.6
246.3
23.51
33.4
12.95
11.14
0.26
0.66
Page 6
RATING RATIONALE
Pankaj Pandey
Head Research
pankaj.pandey@icicisecurities.com
Page 7
ANALYST CERTIFICATION
We /I, Karan Mittal, MBA Sneha Agarwal, MBA Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect
our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.
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