Ortel Communications IPO – Should you invest?
Delhi based Ortel Communications IPO would hit market next week. Revenues grown from Rs 815 Million to R 1,350 Million in last 5 years. It earned Rs 66 Lakhs profit for period ended Sep-2014. All looks good right. This company has been making losses for the last 5 years. But still it asks for Rs 181-200 per share price. While SEBI is scrutinizing the IPO, somewhere there is still gap. How is this Ortel Communications IPO? Is it worth investing in Ortel Communications Limited IPO or not?
About Ortel Communications Limited
Ortel Communications is a regional cable television and high speed broadband services provider focused in the Indian states of Odisha, Chhattisgarh, Andhra Pradesh and West Bengal. They have built a two-way communication network for ‘Triple Play’ services (video, data and voice capabilities) with control over the ‘last mile’. They claim to be 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. Prospectus indicate that it currently holds a dominant position in Orissa, with a fast-emerging presence in its three other markets, covering an addressable market of approximately five million homes (Source: MPA Report, 2014).
Issue details of Ortel Communications IPO
- IPO opens: 3-March-2015
- IPO closes: 5-March-2015
- Face Value: Rs 10 per share
- Price Band: Rs 181 – Rs 200 per share
- Minimum shares to be applied: 75 shares and 75 shares per lot there on
- Minimum investment: Rs 13,575
- No of shares issued: 120 Lakh Shares
- Lead Managers: Kotak Mahindra Capital Company Limited
- Listing: BSE and NSE
- Download Ortel Communications IPO Prospectus from SEBI website here
Purpose of the IPO
The funds would be used for the following purposes.
- Expansion of our network for providing video, data and telephony services
- Capital expenditure on development of our digital cable services;
- Capital expenditure on development of our broadband services; and
- General corporate purposes
- Offer expenses
- Company generated revenue of Rs 814.94 Millions for the year ended Mar-10 and Rs 1,350.36 Millions for the year ended Mar-14. It earned revenue of Rs 719.34 Millions for the 6 months ended Sep-14.
- Company posted a loss of Rs 26.41 Millions for the year ended Mar-10 and a loss of Rs 120.64 Millions for the year ended Mar-2014. Its profits are Rs 6.61 Millions for the 6 months ended Sep-2014.
- EPS for FY2014 is Nil as it incurred a loss.
- Weighted Average EPS for the past 3 years is also nil as it incurred losses in previous years.
Reasons to invest Ortel Communications IPO
- Good revenue growth in last 5 years.
Reasons not to invest in a Ortel Communications IPO
- Company has incurred losses in last 5 years. In the 6 months ended Sep-14, it generated profits. It is difficult to predict how it would perform in coming years.
- Customer base is concentrated in Odisha. Inability to retain and grow its customer base in Odisha may have an adverse effect on revenues, business and results of operations.
- They are currently operating as an MSO on the basis of a provisional license from the Ministry of Information and Broadcasting and failure to receive the final registration or cancellation of the provisional license could materially and adversely affect its business, proposed objects of the Issue, growth strategy, financial condition and results of operations.
- Ortel Communications business model of ‘last mile’ control is capital intensive and they may not be able to arrange adequate funds for future capital expansion.
- They have incurred net decrease in the cash and cash equivalents in fiscal 2013, 2011, 2010 and as of September 30, 2014, which may adversely impact of its business and the value of the Equity Shares.
- Inability to increase its customer base, scale and grow its business operations in new areas of operation, effectively manage growth, pursue and replicate buy-out strategies and compete effectively may adversely impact its results of operations and financial condition.
- The television distribution industry is highly competitive, which may affect this company ability to attract and retain cable television subscribers. It also faces competition from the DTH service providers for the cable television subscribers.
- They may not be able to successfully implement the DAS and may face resistance from customers.
- Four of its Group Companies are in the same line of business as the Company.
- There are certain criminal proceedings pending against this company, its Promoter and its Group Companies
- Complete risk factors can be read from “Risk Factors” section of the IPO prospectus from page no. 16 onwards.
Recommendation / Investment strategy:
- This is the company's second attempt to hit the capital market. Ortel's earlier plan in 2013 to garner Rs 100 crore through the stock market did not take off.
- This company has been incurring losses in the last 5 years. Hence EPS is nil and P/E Ratio cannot be computed. We cannot guess whether the issue price band of Rs 181 to Rs 200 is reasonsable or not.
- Ortel Communications IPO has serious negative factors. Except for good revenue growth, there is no other positive factor. It has been incurring losses in last 5 years. Several competition exists for such business. Investors cannot expect anything by way of dividends. Hence Investors are not going to get anything from this IPO. If you are serious of your hard earned money, please look for other investment opportunities. Investors should avoid investing in such IPO’s.
Disclaimer: I am personally not investing in this IPO.
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Ortel Communications IPO – Should you invest