Ortel Communications commenced business in 1995 and currently, business is broadly divided into (i) Cable TV services comprising of (a) analog cable television services; (b) digital cable television services including other value added services; (ii) broadband; (iii) leasing of fibre infrastructure; and (iv) signal up-linking. Currently 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 5 digital head-ends. It currently offers up to 228 digital channels including 4HD channels and 23 radio channels.
The company is a regional cable TV and high speed broadband services provider focused in the region of Odisha, Chhattisgarh, Andhra Pradesh and West Bengal. 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 pioneered the primary point cable business model in India by offering digital and analog cable television, broadband and VAS services in Odisha, Chhattisgarh, West Bengal and Andhra Pradesh.
Dominant position in Odisha market
Ortel enjoys dominant position Odisha, with a fast-emerging presence in three other markets, covering an addressable market of approximately 5mn homes. The company offer services under brand names, "Ortel Home Cable", "Ortel Digital" and "Ortel Broadband".
Focus on last mile/primary subscribers
The company is focused on the control over the 'last mile' connection. Owning the end connection allows company to directly access to the cable television subscribers thereby capturing the entire subscription revenues paid by the subscribers and reducing reliance on channel carriage fees. This also enables company to seamlessly bundle and offer broadband as well. As on December 31, 2014, 87.21 % of cable subscriber base was on 'last mile' network. Incremental revenue growth on account of digitization would drive operating leverage as content cost would not increase substantially, unlike Den, Hathway and Siti Cable.
Valuations:
"The company has recorded Revenue/EBITDA at CAGR of 15%/20% over FY10-14. The management attributed muted revenue growth in last 2 years has been due to funding constraints.
We have been negative on the cable TV distribution industry from 2 years primarily due to 1) inability of MSO to implement package-wise billing, 2) LCO continues to retain majority of the ground collections and 3) continued pressure from broadcasters for higher programming cost. The positive in the case of Ortel are 1) majority of subscribers are owned and minimal LCO intervention results in minimal revenue leakage, 2) investment in cable network will reap benefits in long term, unlike other MSO who are investing in network currently. However, given the subscriber base, we believe company might face pressure from broadcasters for lower carriage revenue and higher programing cost in digitized scenario.
Focus on last mile connectivity is the key positive for the company, which seems to be largely priced-in. Ortel is valued at 12.1x/13.3x lower/upper price band on annualized FY15 EV/EBITDA. We see limited gains from the listing price", says Emkay Global Financial Services research report.
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