Ortel Communications Ltd

Ortel Communications Limited (Ortel) is a cable tv & high speed broadband service provider rendering its services on a two way communication network for “Triple play” services (video, data and voice capabilities). The business is broadly divided into (i) cable television services comprising (a) analog cable television services; (b) digital cable television services including other value added services such as HD services, near video on demand (NVoD), gaming and local content; (ii) broadband services; (iii) leasing of fibre infrastructure; and (iv) signal uplinking services.
Ortel currently offers services in 48 towns and certain adjacent semi urban and rural areas with over 21,600 km of cables supported by 34 analog head-ends and five digital head-ends. It uses HFC (combination of optic fibre in the backbone and coaxial cable in the downstream) to build its network. The company serves both retail and corporate customers.
It has roughly 500,000 retail subscribers for analog cable television services, 90,000 retail subscribers for digital cable television services and 70,000 broadband subscribers including 120 corporate customers with provisioned bandwidth of 806 mbps adding up to a total of 526,551 RGUs. The company has grown both organically and inorganically through sale of its services directly to the cable television subscribers and buyout of network equipment, infrastructure and subscribers of other LCOs.
Ortel does a turnover of 200 crs, clocks an operating profit of avg 22%, but interest on debt (of 200 odd crores) coupled with depreciation leaves just a paltry net profit. Broadband ARPU is Rs 320/-

Now, why would anybody be interested investing in Ortel when the giant Jio is the future?

Firstly, Ortel is different from Den or Hathway. Den / Hathway and the likes depend on the Local Cable Operator (LCO) for servicing their subscribers, and most of the time the loyalties of the LCO may change for various reasons. However, Ortel lays its own cable, buys out the LCO and services their customers directly ie it has its own last mile network! That means they are a fully integrated player and are customer facing. Also, synergies to cross sell products among customers.

Secondly, they dominate in Odisha and have presence in Chhattisgarh, Andhra Pradesh, Telangana & West Bengal. Many parts of these states have the threat of naxalites and laying new network lines in these areas is not very easy or do-able. Hence Ortel could be a candidate for a potential buyout.

Thirdly, Ortel came out with its IPO at a price band of rs 160-200 in 2014-15. Nothing drastic has changed, except for its price now available at Rs 30/- extremely tempting!

Here you have a company owning its last mile network, with a net worth of 140 crores, trading at a market cap of below 100 crores, a fully integrated play servicing its own customers in urban, semi urban and rural areas, in a country where everything is getting digitized. Company could be direct beneficiary for better rural & semi urban incomes.

Views more than welcome.

Disc: invested a small amount, looking for more conviction!

Why cant we expect Jio to buy ortel. Its possible

Yup, very much possible. That’s what I have mentioned in my second point! Its a potential buyout candidate. Also, given the valuations of Den / Hathaway, Ortel can command a good price due to its last mile ownership!

An interview of September '17 does not inspire much confidence in the prospects of the company in near future. The management talks about growing competition and weakness in the near term. I think that the possibility of share prices falling further is very much there.
Interview dated 6 Sep, 17

Why would JIO buy them ? Ortel to me seems behind the Technology curve.

Cable TV has been getting replaced by Netflix of the world .
Broadband going to get replaced by 5G .

5G can give you speed way better than WIFI , Thats what i have been reading all along.
The cables they have laid down i feel would not be of any use going forward, World is becomimg wireless.

I see its cheap for a reason. They might bankrupt.

I can understand the logic. It’s a monopoly service provider and might not have any other provider in East India. But there is a threat of change in technology I.e product substituition by jio.

I would have considered the stock if there were decent cash flows, but in order to service the debt, all profits are going out as interest repayment. Not a good choice in terms of wealth creation.

Was doing some work on the company, as it came across my radar as one of the portfolio companies of Acacia Partners - which is an extremely reputed long term player, who I have great regard for.
The very nature of the industry it operates means
a) It will be a high capex business
b) growth has to come through consolidation
To me, one of the biggest concerns is its ability to realize cash flows - while its core advantage vs the MSOs has been to own the customers, which is what they claim. To me, the business is at a transitionary stage as their cost of capital is in the mid teens, in secured form ( not cheap). They have a fairly high debt servicing coming up in the next 1 year. I am unable to think about triggers which can help them service their debt, through their current health of the balance sheet. If they can bring their receivables down, the business has a significant operational leverage working in its favour.
I am staying away from comparing it, to its peers as thats a futile exercise to make an investment case for a company ( as there are a few company specific issues we are dealing with here). Certainly seems a worthwhile company to monitor over the next 1-2 quarters