MUMBAI: After tossing between a public float and a rights issue for nearly two years, Ortel Communications Ltd, Odisha‘s leading multi-system operator (MSO), is gearing up tap the market. And unlike last time, private equity fund New Silk Route will not totally exit the company.

Ortel has filed a draft prospectus for an initial public offer (IPO) to raise Rs 1 billion to fund development and expansion of cable television, broadband and internet telephony services.

The public offer also includes an offer for sale by NSR – PE Mauritius LLC to sell, a private equity fund, to sell half of its holding in the MSO. NSR holds 35.15 per cent stake (or 8.18 million shares) in Ortel and is offering for sale 4.09 million shares. As per the agreement with NSR, Ortel was to get listed on the exchanges by March 2012 but could not do so.

The MSO and the private equity fund are considering a private placement of up to 3.5 million equity shares for about Rs 215 per share to raise Rs 750 million prior to the filing of the Red Herring prospectus. This pre-IPO private placement would set the benchmark for fixing the price band for the Ortel public issue to be conducted on a book building basis.
If the private placement goes through, the MSO will reduce the offering – both fresh shares and offer for sale -- in the IPO proportionately, while at the same time ensuring that the post-IPO equity share capital is held by the public (non-promoter).

A preferential issue of 0.9 million shares was made to promoters last in April 2010 at Rs 79 per share and 16,650 shares to NSR at Rs 105 per share in August 2012.

As of 30 September 2012, Ortel had outstanding debt of Rs 1.51 billion with respect to the secured facilities availed by it from certain banks and financial institutions.

As of September 30, 2012, 87.81 per cent of Ortel’s customers are based in Odisha, and its revenues are primarily derived from the sale of cable television and broadband services in Odisha. It has expanded to the states of Andhra Pradesh, West Bengal and Chhattisgarh over the last five years.

“We plan to scale up and expand our business operations in these states. We also plan to expand our business beyond our current areas of operations. Our growth strategy may involve identification of potential high-growth areas, future strategic acquisitions and partnerships,” Ortel said.

Ortel’s business model entails control over the ‘last mile’ which requires significant capital investment. The MSO said in fiscal years 2009-10, 2010-11, 2011-12 its loss after taxation was Rs 37.38 million, Rs 172.96 million and Rs 181.36 million, respectively. Its loss after taxation for the six months ended 30 September 2012 was Rs 128.77 million, which is 71 per cent of the loss in the whole of 2011-12. The company had a net negative cash flow of Rs 218.12 million in 2011-12.

The company also operates a teleport at Bhubaneswar. It uplinks certain channels of Odisha Television Limited, one of the group companies of Ortel, from the teleport. Both Teleport and digital satellite news gathering (DSNG) services are ancillary to Ortel’s core business and accounted for 2.41 per cent of its total income, for the six month period ended 30 September 2012.

Ortel’s revenue generating units (cable TV, broadband and internet telephony subscribers) have grown to 480,328 in September 2012 from 319,749 in April 2010.

The MSOs total income has grown to Rs 1,211.07 million in 2011-12 from Rs 785.31 million in 2009-10 at a CAGR of 24.18 per cent, while its profit before depreciation, interest and tax has increased to Rs 374.75 million in 2011-12 from Rs 214.66 million in 2009-10, a CAGR of 32.13 per cent.

Ortel said, “The focus of our growth strategy has been to acquire cable television subscribers of MSOs and LCOs. Since
April 1, 2010 to September 30, 2012, we have acquired 161,285 cable television subscribers through acquisition of 259 MSOs/ LCOs.”

Ortel also plans to further enhance its digital cable services by offering more value-added services such as pay-per view, digital recording devices, mosaic viewing, and interactive educational offerings.

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IPO gone sour, Ortel eyes rights issue & PE funding