Ortel communications announces IPO

Ortel communications, the Odisha based regional cable television and high speed broadband services provider yesterday proposed their first Initial Public Offering (IPO), a public issue of up to 12 million equity shares of face value of Rs. 10 each (“Equity Shares”) including a share premium per Equity Share (the “Issue”). The price band for the IPO is from Rs. 181 – Rs. 200. The IPO opens on March 3 and closes on March 5.

The objective to come out with the IPO was to expand in markets apart from Odisha, Chhattisgarh, West Bengal and Andhra Pradesh. Though their markets are still unknown, the company does plan to enter video streaming, data and telephony services in their expansion.

Sharing insights on the cable industry in India B J Panda, Chairman Ortel Communications told us the importance of “The Last Mile Model” which is followed by the company. He said, “The industry did not start properly as all the MSO’s and LCO’s did not follow this model, while we have followed this model ever since we began operations in 1995.” He adds, “We have benchmarked ourselves to global standards.”

He also mentions that in India, VoIP is different from what cable operators offer and what telecom operators provide.

On asking about how many MSO’s operate with the last mile model, Bibhu Rath, CEO, Ortel Communications, said, “There are very few in this category. Majority of the MSOs and LCOs do not follow this model and that is why they cannot provide services like voice, or video streaming in broadband, while we can do that as this model allows you to do that.”

Speaking about digitization, Rath tells us that the company is ready for digitization in the four states where it is present. He adds, “We will also be coming up with more services in the year to come.”

Insights on the IPO:

• The company has acquired 490 MSO’s/LCOs from April 1999 to December 2014 which has increased their subscriber base by 221,155 subscribers.

• Currently, the promoters have roughly 64% shareholding and this will decrease to 51% post the IPO. NSR-PE which is their selling shareholder has a share of 33% and their share will reduce to 7% post the IPO.

• Revenue CAGR is 14% (FY 10-14) while EBIDTA CAGR is 16.3% (FY10-14)

• The minimum bid lot is 75 equity share and in multiples of 75 equity shares thereafter.

• The Company and the Selling Shareholder may, in consultation with the Book Running Lead Manager, allocate up to 60% of the QIB Portion to Anchor Investors at the Anchor Investor Allocation Price, on a discretionary basis, out of which at least one-third will be available for allocation to domestic Mutual Funds only. Anchor investors shall bid on Anchor Investor Bidding Date (March 2, 2015).

• The Equity Shares offered through the Red Herring Prospectus are proposed to be listed on the NSE and the BSE.

• The Book Running Lead Manager (“BRLM” *) to the Issue is Kotak Mahindra Capital Company Limited.

The company was one of the first private sector companies in India to be granted an ISP license by the Government of India. It has built a two-way communication network for ‘Triple Play’ services (video, data and voice capabilities) with control over the ‘last mile’. It pioneered the primary point cable business model in India by offering digital and analog cable television, broadband and VAS services in Orissa, Chhattisgarh, West Bengal and Andhra Pradesh. It currently holds a dominant position in Orissa, with a fast-emerging presence in three other markets, covering an addressable market of approximately five million homes (Source: MPA Report, 2014). It currently offers 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. The brand names, “Ortel Home Cable”, “Ortel Digital” and “Ortel Broadband” are well known in the regions in which it operates. It commenced its business in 1995 and currently, business is broadly divided into (i) 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, gaming and local content; (ii) broadband services; (iii) leasing of fibre infrastructure; and (iv) signal uplinking services. The Company’s business model is focused on the control over the ‘last mile’ connection. As on December 31, 2014, 87.21% of cable subscriber base is on its own ‘last mile’ network. It services both retail and corporate customers. It has grown both organically and inorganically through sale of services directly to the cable television subscribers and through buyout of network equipments, infrastructure and subscribers of other MSOs and LCOs.

Disclaimer: Ortel Communications Limited proposes, subject to receipt of requisite approvals, market conditions and other considerations, to make a public issue of its equity shares (“Equity Shares”) and has filed a red herring prospectus (“RHP”) with the Registrar of Companies, National Capital Territory of New Delhi and Haryana. The RHP is available on the website of SEBI at www.sebi.gov.in as well as on the website of the lead manager at www.investmentbank.kotak.com. Investors should note that investment in equity shares involves a high degree of risk and for details relating to the same, see the section titled “Risk Factors” of the RHP. This document is not an offer of securities for sale in the United States or elsewhere. This document has been prepared for publication in India and is not for publication or distribution, directly or indirectly, in or into the United States. The Equity Shares have not been and will not be registered under the U.S Securities Act of 1933, as amended (the "U.S Securities Act") and may not be offered or sold within the United States (as defined in Regulation S of the U.S Securities Act), except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the U.S Securities Act and applicable state securities laws. There will not and is not currently intended to be any public offering of securities in the United States. Accordingly, the Equity Shares are only being offered and sold outside the United States in reliance on Regulation S of the U.S Securities Act and the applicable laws of the jurisdiction where these offer and sales occur. “Investors should note that investment in equity shares involves a high degree of risk and for details relating to the same, see the section titled “Risk Factors” on Pg 16 of the RHP.” By Archit Ambekar | Twitter: @aambarchit