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Ortel eyes expansion via buyout of LCOs, turns profitable in FY15

MUMBAI: Odisha’s dominant multi-system operator (MSO) Ortel Communications is planning to take the inorganic route, expand into new geographies, deepen presence and increase broadband penetration.

Ortel, which is already present outside Odisha in Andhra Pradesh, Chhattisgarh and West Bengal, is seeking to expand through ‘buyout’ of network equipment, infrastructure and subscribers of other small MSOs who have last-mile access and local cable operators (LCOs).

OrtelIn April, Ortel signed network buyout agreements with 40 LCOs with total estimated revenue generating units (RGUs) of 17,500. These customers will be reported under the company’s last-mile subscribers in the forthcoming months.

It will also focus on increasing penetration of digital television services and broadband subscriber base, and is leasing out fibre infrastructure to corporate entities as an important source of revenue.

On a positive note, Ortel has seen a 29 per cent jump in its carriage income during the fiscal ended 31 March 2015. At the same time, its content cost has seen just 8 per cent increase over the year-ago period.

The company is also pushing the paddle on broadband and has completed trials of Docsis 3.0 technology. As of 31 March 2015, its total broadband RGUs stood at 58,519, constituting 11 per cent of Ortel’s total RGUs.

Carriage income in full fiscal

In FY15, Ortel earned a total revenue of Rs 108.5 crore (Rs 1.08 billion) from cable TV, out of which Rs 26.4 crore (Rs 264 million) came from carriage fee, which increased 29 per cent over the year-ago period.

“Increase in channel carriage fees and infrastructure leasing contributed to the performance during the year,” the company said.

However, the revenue from cable subscription fee saw a mere 4 per cent increase to Rs 79 crore (Rs 790 million), compared to Rs 75.7 crore (Rs 757 million) in the prior year.

Incidentally, the company generated Rs 28.9 crore (Rs 289 million) from broadband services, and income from infrastructure leasing stood at Rs 14.5 crore (Rs 145 million).

Ortel FY15 rev

Total revenue from operations surged 20 per cent during the fiscal.

Ortel’s ARPU trend

On a full-fiscal basis, average revenue per user (ARPU) showed an increase year on year, while analogue, retail broadband, and corporate broadband ARPUs have fallen in FY15.

Ortel ARPU

Content cost up 8%

Being a regional MSO with a dominant presence in Odisha, Ortel’s rise in content cost has been in single digit. This, however, could rise higher when digital addressable system (DAS) takes place in Phases III and IV, the area of the MSO’s operations.

Unlike the majority of MSOs who have seen double-digit growth in their content cost, Ortel’s programming cost saw a mere 8 per cent increase to Rs 34.2 crore (Rs 342 million), up from Rs 31.7 crore (Rs 317 million) in FY14.

The company said that 8 per cent increase was on the back of ‘annual increase’ as per the terms of agreements with broadcasters and/or content providers.

Meanwhile, total expenditure was up 11 per cent to Rs 101.4 crore (Rs 1.01 billion) during the fiscal, out of which bandwidth cost was at Rs 6.7 crore (Rs 67 million), up 9 per cent.

Ortel FY15 exp

Ortel turns profitable in FY15

Ortel posted a consolidated net profit of Rs 5.6 crore (Rs 56 million) for the fiscal ended 31 March 2015. In the previous fiscal, the company had suffered a net loss of Rs 13.8 crore (Rs 138 million).

While expenses went up by 11 per cent, Ortel saw a 20 per cent growth in revenue, which helped it to post an operating profit (EBITDA) of Rs 53.3 crore (Rs 533 million), up from 37.4 crore (Rs 374 million) in the year-ago period.

Consolidated revenue from operations stood at Rs 154.8 crore (Rs 1.55 billion) in the fiscal ended 31 March 2015, up 20 per cent from the earlier year. While cable TV services revenue stood at Rs 108.5 crore (Rs 1.08 billion), income from broadband services was Rs 28.9 crore, up 5 per cent. Income from infrastructure leasing was Rs 14.5 crore (Rs 145 million) and other operating income stayed flat at Rs 29 million.

Ortel scorecard

The EBITDA margin stood at 34.5 per cent for the fiscal. The company said that margins enhanced owing to an increase in channel carriage fees and income from infrastructure leasing along with growth in cable and broadband segments.

The gross margins of the cable and broadband segment stood at 68 per cent and 83 per cent respectively.

Additionally, RGUs as a percentage of homes passed improved to 65 per cent, further supporting the EBITDA margin.

Performance in Odisha, Ortel’s core market

In its home market, Ortel’s total revenue jumped to Rs 144.6 crore (Rs 1.45 billion) in FY15, compared to Rs 116.9 crore (Rs 1.17 billion) in FY14.

EBITDA grew from Rs 48.3 crore (Rs 483 million) to Rs 67.4 crore (Rs 674 million), while the EBITDA margin was at 46.6 per cent, up 520 basis points from 41.3 per cent in the year-ago period.

As of 31 March, the total number of homes passed was at 641,043, while RGUs stood at 474,966.

Performance in emerging markets

Ortel’s business growth in the states of Andhra Pradesh, Chhattisgarh, and West Bengal was unlike that in the core market.

In FY15, total revenue dropped 2 per cent to Rs 11.9 crore (Rs 119 million), from Rs 12.1 crore (Rs 121 million), while EBITDA loss was at 4.1 crore (Rs 41 million), up from an EBITDA loss of Rs 1.8 crore (Rs 18 million).

Combined home passed were at 169,361, while RGUs were just 55,145.

Debt

The company’s gross debt stood at Rs 144.8 crore (Rs 1.45 billion) as on 31 March 2015, while net debt was at Rs 26.3 crore (Rs 263 million).

Q4 snapshot

For the quarter ended 31 March, Ortel posted a net profit of Rs 5 crore (Rs 50 million). Its revenue from operations stood at Rs 44.9 crore (Rs 449 million). Out of this, revenue from cable TV services stood at Rs 27.8 crore (Rs 278 million), while broadband services revenue was at Rs 7.5 crore (Rs 75 million). The company earned Rs 8.9 crore from infrastructure leasing.

Ortel earned Rs 7.4 crore (Rs 74 million) from carriage fee during the quarter.

Expenses for the quarter stood at Rs 24.5 crore (Rs 245 million), out of which programming cost was at Rs 8.5 crore (Rs 85 million) and employee cost stood at Rs 1.7 crore (Rs 17 million).

EBITDA for the quarter stood at Rs 20.4 crore (Rs 204 million) and EBITDA margin was at 45.4 per cent.

Other key developments

IPO: The company raised Rs 108.6 crore (Rs 1.09 billion) through its IPO of 6 million equity shares of face value of Rs 10 each at a price of Rs 181 per equity share.

LCO buyout: In April this year, Ortel signed network buyout agreements with 40 LCOs with total estimated RGUs of 17,500.

HD launch: The company has started offering HD services in its core markets of Bhubaneswar and Cuttack. Currently, it is providing 14 HD channels and plans to increase it to 25 channels going forward.

High-speed broadband packs: It has launched up to 5 Mbps plans for customers in Bhubaneswar and intends to expand it to other markets.

Docsis 3.0 rollout: It has completed trial of Docsis 3.0 technology and intends to roll out the services soon.

Improvement in debt rating: ICRA has upgraded the debt rating of Ortel Communications to BB- from C+

Current strength

Ortel enjoys addressable market of approximately 5 million homes, of which 530,000 RGUs are already covered. Further, the MSO’s growing markets have maximum headroom for growth in the cable TV and broadband industry.

It has a direct-to-consumer business model with full control over the last-mile operator. It already claims of 88 per cent of the subscriber base under its own network.

Ortel key ops

Ortel has established a two-way communication network for ‘Triple Play’ delivery (video/TV, data/broadband, and voice capabilities) with HFC network (combination of optic fibre in the backbone and coaxial cable in the downstream) and legal ‘rights of way’ for laying network.

It is also capable of providing broadband at speeds up to 42.88 Mbps through DOCSIS technology.

Scrip movement

After listing on the bourses on 19 March, the Ortel scrip hit the lower circuit and saw a continuous drop till the end of March. However, the scrip saw some recovery on 30 March, and has been on an upward curve since, except for a few days in between.

Ortel scrip movement

In fact, the scrip hit a new 52-week high on 20 April after positive results and the trading also saw a 4.62 per cent surge in volume. After touching an all-time high of Rs 189.70 apiece, the scrip closed at Rs 179.40, or up 3.70 per cent, from its previous close on the BSE.