ISP Shyam Spectra’s FY19 EBITDA grows 33% to Rs 37.38 cr

MUMBAI: Internet service provider (ISP) Shyam Spectra Private Limited’s (SSPL) has posted an EBITDA of Rs 37.38 crore for the fiscal ended 31st March 2019 as against Rs 28.21 crore in the previous fiscal.

SSPL’s operating profitability remained modest due to the capital intensive nature of its operations. The company requires continuous investment in rolling out new optical fibre cable networks. It undertook capex of Rs 42.76 crore in FY18 and Rs 30.75 crore in FY19 to increase its reach and customer connectivity.

Incorporated in May 2008, SSPL is a neutral carrier service provider. It provides internet services to retail and enterprise customers under the Spectranet brand. The company has a presence in Delhi, Gurugram, Ghaziabad, Noida, Mumbai, Pune, Bengaluru and Chennai.

Return on capital employed was 4.8% in FY19 (FY18: 2.9%). However, EBITDA margins improved to 20.0% in FY19 (FY18: 15.6%, FY17: 17.6%) due to a reduction in operating cost as a percentage of sales and a decline in the advertisement expenses.

SSPL’s revenue grew at a CAGR of 6.1% to Rs 186.98 crore over FY16-FY19 (FY19: 3.3% yoy) on the back of an increase in average revenue per user (ARPU). The company mainly caters to small and medium-sized enterprises (SMEs) and residential and multi-dwelling units. Repeat orders from the existing customers in the SME vertical and increasing home broadband customers provides revenue visibility.

India Ratings and Research (Ind-Ra) has affirmed SSPL’s Long-Term Issuer Rating at ‘IND BBB-’. The Outlook is Stable. It further stated that the ratings are provisional and shall be confirmed upon the sanction and execution of loan documents for the above facilities by SSPL to the satisfaction of Ind-Ra.

The rating agency further stated that SSPL could face some moderation in its operating margins FY21 onwards owing to the expected entry of Reliance Jio Infocomm in the fibre-to-the-home space, resulting in aggressive pricing from other players.

However, Ind-Ra expects the impact to be partially offset by SSPL’s future contracts and the rising subscriber base, which would support the margins in the near-to-medium term.

Following the margin improvement, net leverage (operating EBITDA/net interest expense) improved to 2.5x in FY19 from 3.3x in FY18 (FY17: 2.5x) and gross interest coverage (operating EBITDA/net interest expense) to 3.7x from 3x.

Ind-Ra expects the credit metrics to remain strong in the near term due to the maintenance of healthy absolute EBITDA (FY19: Rs 37.38 crore, FY18: Rs 28.21 crore) and the repayment of the long-term loans.

SSPL’s average maximum utilisation of fund-based working capital limits in the 12 months ended June 2019 was 90.1%. The cash flow from operations (CFO) remained healthy over FY16-FY19 (FY19: Rs 26.45 crore). SSPL had a cash balance of Rs 3 crore at FYE19.

Ind-Ra stated that deterioration in operating profitability and any unexpected large debt-led capex, leading to the net leverage increasing above 3.5x on a sustained basis will be negative for the ratings.

A significant improvement in the overall revenue, along with an increase in the operating profitability, leading to the net leverage improving below 2.5x on a sustained basis will be positive for the ratings.

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