1376541187PC - Ortel Initiating - May 2016 20160526115034

INSTITUTIONALEQUITYRESEARCH
OrtelCommunicationsLtd(ORTELIN)
Owningitsgrowth;B2CcompanyatB2Bvaluations
26May2016
INDIA|MEDIA|InitiatingCoverage
Ortel is a regional cable TV and broadband provider focused on the states of Odisha,
Chhattisgarh, MP, AP, WB, and Telengana. Its combination of lastmile ownership and
superiorbroadbanddistributioninfrastructuremakesitthebestdistributionmodelinthe
industry (proven in developed markets), positioning it for longterm success. Its
investmentsinitsnetworkandplatformputitinastrongpositiontobenefitfromrising
demand for highbandwidth broadband services. Given its strategic strengths, it is well
placedtoclockimpressiverevenue/EBITDACAGRsof36%/46%overFY1618.Webelieve
its assets and its managements continued execution warrant a premium multiple. We
initiate coverage on Ortel Communications with a BUY rating and value it using DCF
methodology,arrivingataoneyearforwardtargetpriceofRs300.
Differentiatedlastmilemodelcommandshighestoperatingmarginsamongpeers:Unlike
mostnationalMSOs,whichfollowaB2Bmodel,Ortelhasdifferentiateditselfbyfocusingon
ownershipandcontrolofthelastmile(currentlyowns90%ofitssubscribers).At~0.65mn,
itsprimarysubscribersareatasimilarscaleorevenhigherthansomenationalMSOs.Direct
collections from subscribers help in: (1) controlling trade receivables (43 days vs. 100130
daysforotherMSOs),(2)reducingrevenueleakagetoLCOs(ARPUis30%higherthanother
MSOs),and(3)incommandingthehighestoperatingmarginsamongpeers(34%vs.<20%
for other MSOs). We also believe that the digitisation of phase3 and 4 areas will enable
Ortel to significantly grow its Revenue Generating Units (RGUs) over the next two years.
Currently,ithasalownetdebttoequityratioof1x,whichprovidesconsiderableheadroom
formoredebtfundedacquisitionsofRGUs,withoutstretchingthebalancesheettoomuch.
Wellpositionedtobenefitfromrisingdemandforhighspeedbroadbandservices:Ortel's
investments in its network and platform put it in a strong position to benefit from rising
demand for highbandwidth broadband services. Given low penetration of broadband
products in Ortels markets, it seems well placed to triple its broadband RGU in the next
three years, implying subscriber CAGR of 44% from FY1619. Also, contribution from this
highmargin revenue stream (EBIT margin of 60% vs. consolidated EBIT margin of 52%) is
estimatedtoincreaseto25%fromcurrent16%,implyingrevenueCAGRof48%overFY16
19. Current penetration of broadband RGUs is ~10%, which leaves substantial upside to
improve,evenbeyondFY19.
OrteltoseeimpressiverevenueandEBITDAgrowthoverFY1618:WeestimatethatOrtels
revenuewillseeaCAGRof36%overFY1618duetorobustRGUadditionsanddigitisation.
Similarly, EBITDA should see an impressive CAGR of 46% over the same period. Margins
shouldimproveby500bpsoverFY1618aidedby:(1)improvementincableARPU,(2)higher
revenuecontributionfrombroadbandbusiness,and(3)stablecontentcosts.However,due
to higher depreciation and amortisation expenses, PAT CAGR of 25% will be lower than
revenueandEBITDAgrowth.
A B2C company that is available at a B2B valuation: The investor community has been
disappointedwiththepooroperatingperformanceofsomeofthelistedMSOsoverthelast
fewyears,astheirhugefinancialinvestmentshaveyieldedlittleimprovementintheirreturn
matrices.Withitsdifferentiatedbusinessmodelanditsmanagementscontinuedexecution,
we believe Ortel will command a premium over other listed MSOs.With 65% incremental
RGUs coming from emerging markets during FY16, Ortel has proved that its lastmile
approach can work even outside its home state. We value the company on DCF using a
WACC of 12.1% and terminal growth rate of 5% to arrive at a March 2017 PT of Rs 300,
implyinganupsideof80%.Atourtargetprice,itwilltradeat10x/8xFY17/18EV/EBITDA.
Page|1|PHILLIPCAPITALINDIARESEARCH
BUY
CMPRS180
TARGETRS300(+68%)
COMPANYDATA
O/SSHARES(MN):
MARKETCAP(RSBN):
MARKETCAP(USDMN):
52WKHI/LO(RS):
LIQUIDITY3M(USDMN):
PARVALUE(RS):
30
5.4
82
231/158
0.012
10
SHAREHOLDINGPATTERN,%
PROMOTERS:
FII/NRI:
FI/MF:
NONPRO:
PUBLIC&OTHERS:
Dec14
51.6
28.4
3.2
15.3
1.5
PRICEPERFORMANCE,%
ABS
RELTOBSE
1MTH
0.8
1.5
3MTH
5.8
2.1
1YR
3.4
3.1
PRICEVS.SENSEX
145
120
95
70
May15 Aug15 Nov15 Feb16
Ortel
BSESensex
Source:PhillipCapitalIndiaResearch
KEYFINANCIALS
Rsmn
NetSales
EBIDTA
NetProfit
EPS,Rs
PER,x
EV/EBIDTA,x
P/BV,x
ROE,%
Debt/Equity(%)
FY16E
1,878
618
120
4.0
45.4
10.5
3.9
8.6
92.8
FY17E
2,842
1,043
252
8.3
21.7
6.9
3.3
15.3
151.4
Source:PhillipCapitalIndiaResearchEst.
ManojBehera(+912266679973)
mbehera@phillipcapital.in
FY18E
3,496
1,325
170
5.6
32.1
5.4
3.0
9.4
164.8
ORTELCOMMUNICATIONS INITIATINGCOVERAGE
BusinessmodelsuperiortoexistingMSOs
The business dynamics of Indias payTV market is changing significantly, with
governmentmandated digitisation acting as a catalyst. Government of India has
mandateddigitisationinIndiainfourphases.Phases1and2arealreadyover(top38
cities in India). Phase3s deadline was December 2015 and phase4s deadline is
December 2016. In the entire analog cable value chain, organized MSOs capture
limitedvalue;itiscurrentlydominatedbyunorganizedLCOs.
Herearekeyissuesplaguingthecablemodel:
GreaterbargainingpowerrestswiththeLCOs:MSOsandLCOshaveamutually
dependentrelationship;LCOscontrolthelastmileoperationsandMSOscontrol
the scale functions. Since the last mile is handled by the LCOs, the flow of
subscriptionrevenue(whichiscollectedbyLCO)toMSOsremainsbelowpar.In
order to usher in a digitalcable regime, TRAI has issued a directive in 2012
specifying 55:45 revenue sharing for MSO:LCO for FTA channels and 65:35 for
payTVchannels.DespiteTRAIsorder,therevenueshareisnotevenclosetothe
baselinenumber.
CutthroatcompetitionamongMSOstograbhighersubscribermarketshare:In
theanalogcableregime,itwasveryeasyforanLCOtoswitchtoanewMSO.An
LCOthatswitchedwouldnotonlyimpactMSOssubscriptionrevenue,butalso
impactcarriagerevenue.WhileMSOshaveagreedinprincipletostoppoaching
LCOsfromeachother,theystillneedtoimplementthisstrictly.
MSOshaveveryfewdirectsubscribersandtherefore,areheavilydependentonLCOs
forlastmileconnectivity.This,coupledwiththeloosearrangementbetweenanMSO
andanLCOmakestheMSOvulnerabletoanyentrybyaplayerwithdeeppockets.
Digitisationwassupposedtochangetheentireequation
The governments DAS mandate was the big hope with encrypted signals and
deployment of STBs at customers premises, 100% subscriber addressability was to
be ensured, resulting in improved share of ARPUs for MSOs. While the seeding of
STBs was done on time, it has only been a technical digitisation and not true
digitisation;theprocessofcollectingconsumerleveldataandtheimplementationof
packaging/tiering has been painfully slow. The old practice of customers paying for
thebasepackandreceivingallchannelsisstillcontinuingatmanyplaces,withLCOs
reluctanttorolloutchannelpackages.MSOsshareofconsumerARPUsremainssub
par and disputes with LCOs and broadcasters lead to churnout of subscribers (to
DTH)eveninphase1/2markets.
LastmileconnectivityisthekeydifferentiatorforOrtel
UnlikemostnationalMSOs,whichfollowaB2Bmodel,Ortelhasdifferentiateditself
byfocusingonownershipandcontrolofthelastmile(itowns90%ofitssubscribers).
Due to this, Ortel ensures legally approved rights of way, superior service, minimal
leakages,andthatthequalityofitsnetworkisuniformlymaintained.Directaccessto
subscribersalsolimitslargescalechurn(essentiallyLCOchurn).Directcollectionsfor
subscribershelpincontrollingtradereceivablesandreducerevenueleakagetoLCOs.
DependenceonLCOsforlastmile
connectivityishinderingthe
implementationofpackagingand
tiering
Ortelowns90%ofitssubscribers,which
ensuresthatqualityofnetworkis
uniformlymaintainedalongwith
superiorcustomersupportservice
ARPUcomparisonOrtelvs.otherMSOs
Hathway* PhaseIARPU
Ortel AnalogARPU
Hathway* PhaseIIARPU
Ortel DigitalARPU
200
180
160
140
OrtelARPUis30% higher
thanthatofHathway
120
100
80
60
40
Q1FY15
Q2FY15
Q3FY15
Q4FY15
Q1FY16
Q2FY16
Q3FY16
*ARPUofotherMSOsarealsoinsimilarterritory
Source:Hathwaycompanypresentation,PhillipCapitalIndiaResearch
ComparisonofreceivabledaysOrtelstandsout
Receivabledays
Ortel
Hathway
SitiCable
DenNetworks
FY13
38.2
94.9
67.8
123.7
FY14
42.1
100.1
76.5
119.3
FY15
42.4
108.3
105.5
129.6
Highest operating margins among peers: Ortels lastmile connectivity allows it to

command the highest operating margins amongst its peers, as there is no revenue
sharing with the LCO. Last mile also ensures that the company addresses customer
grievances on a realtime basis. Over the last five years, its EBITDA growth has
outgrown revenue; its margins have expanded to 34% in FY15 (33% in FY16) from
29%inFY13.
EBITDAmargincomparisonacrossallMSOs
EBITDAM(%)
Ortel
Hathway
SitiCable
DenNetworks
FY13
28.8%
24.2%
15.5%
22.0%
FY14
28.6%
19.0%
16.2%
24.8%
FY15
34.1%
14.2%
15.2%
6.8%
Ortelsdifferentiatedbusinessmodelexplained
BusinessModel
CarriaeandPlacement
(C&P)Revenue
Crossselling
WorkingCapital
B2Bmodeloperated
through
franhchises/LCOs;60
70%ofsubscription
revenueissharedwith
theLCOs
Continuetodepend
highlyonC&P,which
accountsover1/3rdof
operatingrevenues
Donthavetheability
toprovidebroadband
andotherservicesas
thenetworkisowned
byLCOs
Alongercollection
cycle,withreceivable
daysrangingbetween
100130days
NationalMSOs
B2Cmodelfocusedon
primarypointsenables
Orteltocaptureentire
subscriptionrevenues
Lowdependenceon
C&PholdsOrtelin
goodsteadas
digitalizationwould
graduallyabolish
carriage
Easiertoofferafull
rangeofservices,
leadingtobetter
margins
Directcollections
enablebettercash
flowmanagementand
ahealthierworking
capitalcycle
Ortel
Communications
Ortelsprimarysubscriberbaseisoneofthehighestintheindustry
FY15
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0.0
Hathway
SitiCable DenNetworks Indigital
*FY16primarysubscribernumbers
Digicable
OrtelCable OrtelCable*
CableTVproviderswellplacedtoofferbroadband
Globally, it has been proven that the business that can (1) integrate the TV and
broadband ecosystem and (2) become the goto, anytimeanywhere access point
forTV,smartphones,andtabletviewingwillcreateahugecompetitiveadvantage.
Cableserviceproviderswithbroadbandinfrastructureareespeciallywellpositioned
todevelopsuchadvantages.Broadbandcableremainsthehighestreturnproductfor
distributionplatformsinmostdevelopedmarkets.
Singleproductinternalrateofreturn(%)(USA)
70
2012
2017
60
50
40
Globally,broadbandcableremainsthe
highestreturnproductfordistribution
platforms
30
20
10
0
CableVideo
CableVOIP
SateliteTV
CableBoradband
Source:OrtelRHP,PhillipCapitalIndiaResearch
Thekeyadvantageforcableoperatorsinglobalmarketsstemsfromreturnpathor
twowaytechnologicalinfrastructure.Thisallowscableoperatorstoofferhighspeed
broadbandservices.Oncethecablenetworkisupgradedandreversepathenabled,
the ability to offer new services such as highspeed internet makes a compelling
proposition.
The other advantage to cable operators will come in the form of largescale fibre
backhaul availability, whichcould reducecapital expenditure andthetime required
to expand to new territories. Additionally, it also allows operators to focus on last
mileupgradestocoaxialnetworksthatarecapableofprovidingbroadbandservices.
Cableoperatorsgloballyhaveexcelledateffectivelysellingtripleorquadplayservice
offerings.
CablebroadbandservicesinIndiaarebelowpar,butstructuraldriversareintact
In India, wireline broadband penetration is abysmally low vs. other developed
markets. Even wireless broadband penetration (though growing at a rapid pace) is
below10%andwirelessserviceprovidersaregrapplingwithspectrumcrunchwhile
launchingservicesatanaffordableprice.Lowpenetrationisduetounavailabilityof
an affordable data ecosystem and inadequate infrastructure deployment by
incumbents.
Webelievethatinthefuture,thefollowingstructuraldriverswillaidrapidadoption
ofcablebroadbandinIndia:
Anenablingecosystemfordatausage:AspertheFICCIKPMG2015report,the
numberofinternetenabledsmartphonesinIndiaarelikelytoseeaCAGRof30%
from CY1419. Tablet penetration in India is only 2%, and is likely to pick up
significantly with more affordability. Multiple user screens will lead to higher
bandwidthconsumption.
Significantdivergenceindatarates:Currently,1GBofdataona3G/4Gnetwork
costsRs250vs.Rs30inDOCSIS3.0(currentplansacrossserviceprovideroffer
20GB data for Rs 650 at 78 Mbps). Not surprisingly, consumers prefer cable
broadbandforheavyusage.
Higher return on investment: Providing broadband services via cable networks

enables higher return on investment due to lower operating costs from
leveragingexistingtwowaycableTVnetworkinfrastructure.
Orteliswellplacedtograbtheopportunity
Ortel is one of the first privatesector companies to be granted ISP license by the
GovernmentofIndia.Currently,itiscapableofprovidingdataservicesataspeedof
up to 100MBPS through cable modems with DOCSIS 3.0 standard through its HFC
network.Itsfibrebackboneandlastmilenetworkenablecustomerstoaccesshigh
speed services. It offers various packages to customers with speeds ranging from
0.5mbpsto50mbps,withvariousmonthlyplans.
BroadbandRGUtoincreasesignificantlyoverthenextcoupleofyears
Overthelastfewquarters,Ortelhastakenmultipleinitiativesthatwebelievewillaid
insignificantgrowthinbroadbandRGUforthecompany:
Tohavebetterfocusonitsbroadbandbusiness,itappointedMrJijiJohnasthe
vicepresidentofthisbusiness.MrJijiisanindustryveteranwithover18yearsof
experience in business development, strategic planning, and channel
management.InhisearlierstintwithAsianetbroadband,hewasinstrumentalin
setting up the broadband business for Aisanet Cable. We believe that his rich
experience and deep understanding of the sector will help Ortel strengthen its
positioninthebroadbandsegment.
In a crossselling move, Ortel offered a years worth of free broadband to its
digital cable subscribers in Orissa, West Bengal, and Chhattisgarh.
Simultaneously, existing broadband subscribers were given a chance to sample
Ortels digitalcable offering. It has also tied up with OTT platform ErosNow to
launchastreamingservicecalledOrtelBroadbandMovies,creatinganoutletfor
videodataconsumption.
InJanuary2016,itintroducedaWiFipublichotspotservice,whichgrantswired
broadband subscribers public access to wireless broadband on their existing
internetaccounts.
InMay2016,itintroducedawiderangeofplansincluding100mbpsmegaspeed
DOCSIS3.0broadbandinternetinOdisha.Thenewbroadbandplansrangefrom
2100mbpsandprovidesthecompanyaheadstartovercompetitors
Givenlowpenetrationofbroadbandproducts(wireless+wireline)inOrtelsmarket
and renewed marketing vigour for the broadband product, we believe that the
companyiswellplacedtotripleitsbroadbandRGUinthenextthreeyears.
GrowthofbroadbandRGUhistoricalandestimated
250000
BroadbandRGU
46%CAGR
200000
150000
100000
50000
0
FY13
FY14
FY15
FY16E
Source:Company,PhillipCapitalIndiaResearchEstimates
FY17E
FY18E
FY19E
Ortelhastakenmultipleinitiativesin
thebroadbandbusiness,whichwill
enableittoclocksuperlativegrowthin
thebusinessoverthenextfewyears
We believe that current penetration (6% in FY16, expect 11% in FY19) of homes
leaves substantial upside for total penetration of broadband services within Ortels
footprint.
GrowthofbroadbandRGUhistoricalandestimated
2500000
BroadbandRGU
11.0%
HHPassed
Penetration(%)
10.0%
2000000
1500000
12.0%
10.0%
6.3%
6.8%
7.2%
8.0%
7.0%
6.1%
6.0%
1000000
4.0%
500000
2.0%
0.0%
FY13
FY14
FY15
FY16E
FY17E
FY18E
FY19E
Inexpansionmode;RGUstoriseby42%inFY17
Ortel has set an ambitious target of adding ~300,000 RGUs to its existing base of
~700,000 by FY17. We believe that digitisation of phase 3/4 areas will enable the
companytoachieveitsRGUtarget.Thisisbecause,mostLCOs/MSOsinthismarket
wouldhavesmallscaleandlackthefinancialcapabilitytoupgradetheirnetworkand
seed STBs. Also, the LCO community is facing serious competition from DTH
operatorsandisrapidlylosingsubscriberbasetothem.Theyaremostlikelytoalign
withanMSO(likeOrtel),whichhasbiggerscaleandhasdeeppocketstotakecareof
the financial commitment needed to upgrade and digitise the network. Such an
alliancewouldsavethemfromtaxpaymenthassles(serviceandentertainmenttax)
to government authorities. We believe there is enough opportunity for Ortel to
significantly grow its existing subscriber base. Going ahead, its geographical mix
would be more diversified with nonOdisha market contributing at least 3540% of
RGUsfrom10%inFY15.
Ortel has demonstrated (in FY16) its capability to quickly execute the acquisition
process and integrate the acquired RGU with itself. Ortel added 171,081 RGUs in
FY16withanother86,797RGUsinthepipeline(dealsignedbutnotintegratedyet).
49% growth in RGUs in FY16 gives us confidence that Ortel will be able to achieve
similargrowthinFY17.
RGUadditionsHistoricalandestimated
1200000
1100000
AnalogcableRGU
DigitalcableRGU
30%CAGR
BroadbandRGU
1000000
900000
800000
700000
600000
500000
400000
300000
FY13
FY14
FY15
FY16
FY17E
FY18E
BuyoutofLCOworksreapingrichdividends,eveninnoncoremarkets
OrtelsstrategyofbuyingoutofLCOshasnotonlyreapedrichdividendsinitscore
market (Odisha), but has also enabled it to gain share in neighbouring states
(Chhattisgarh,MadhyaPradesh,AndhraPradesh,Telangana,WestBengal).With65%
incremental RGUs coming from these states during FY16, Ortel has proved that its
lastmileapproachcanworkevenoutsideitshomestate.
FundingrequirementforacquisitionsofRGUswillstretchitsbalancesheet
AsperitsarrangementwithLCOs,Ortelpaysanupfrontfee(Rs1000persubscriber)
toacquireanLCOsnetworkequipmentandinfrastructure.Theremainingpaymentis
made in parts to the LCO, which is required to enter into a revenuesharing
arrangementwithOrtelinreturnfor2530%ofitsTVsubscriptionrevenueoverthe
followingfiveyears.StaggeredpaymentsmitigatetheriskofareentrybytheLCO,
whilehelpingOrtelcontrolitscashflow.
After it pays upfront fees, Ortel dismantles the LCOs existing network so that the
latter cannot tinker around with the network. It then lays down its own improved
networkthatiscapableofprovidingbroadbandandcableTVservices.Ortelsfocus
Digitisationofphase3/4areaswill
enablethecompanytoachieveitsRGU
target
sinceitsinceptionhasbeentoownthelastmile,sothatitcancrosssellitsproduct
andrealisehigherARPU.
ThefundingrequirementforacquiringasubscriberisRs5,900(seetablebelow)and
hence Ortels funding requirements over three years would be to the tune of Rs
3.7bn.Thecompanyintendstofundthisviainternalaccrual,debt,andvendorcredit
fromtheSTBmanufacturer.
FundingrequirementforacquiringanRGU
Networkcost(Rs)
Onewaynetworkcost
Twowaynetworkcost
Initialpenetration
Blendedcost
RGUtoHomepassedpenetration
Overallcost
Dropcablecost
TotalnetworkcostperHP
STB/Modemsubsidy
Backendcost
Totalnetworkcost
800
1600
50%:50%
1200
60%
2000
250
2250
900
250
3400
Acquisitioncost(inRsperRGU)
Upfrontpayment
NPVoffuturerevenuesharingdeal
TotalpayouttoLCO
1000
1798
2798
SplitofacquisitiontoOrganic
NetcapexperRGU
90%
5918
Source:Company,PhillipCapitalIndiaResearch
Capexrequirement(inRsmn)FY1719
4000
1187.45
3000
283.76
3709.35
2000
1210
1000
1028
0
Networkcapex
STB
Broadband
LCOpayout
Total
LowD/Eratioleavesenoughheadroomfordebtfundedacquisitions
Ortel has a low netdebttoequity ratio of 1.0x (FY16 estimated), which provides
considerable headroom for more debtfunded acquisitions of RGUs without
significantly stretching its balance sheet. Hence, despite company incurring
considerablecapexoverthenextcoupleofyears,itsleverageratioswillcontinueto
remain at comfortable levels. We estimate its netdebttoequity and netdebtto
EBITDAratiostopeakinFY17andimprovefromFY18,asitstartsmigratingitsnewly
acquiredsubscriberstohighervaluepacks.
NetdebttoequityandnetdebttoEBITDAratiostopeakinFY17
3.00
2.50
2.00
1.50
1.00
0.50
0.00
FY15
FY16E
FY17E
Netdebttoebitda
FY18E
Netdebttoequity
FY19E
RevenueCAGRof36%overFY1618
RGUstodoublebyFY1718fromFY15
Currently,thecompanyhas~700,000RGUs(90%cable,10%broadband),butithas
ambitious targets of adding 300,000 RGUs in FY17. As the industry heads into the
final stage of digitisation, Ortels cable business seems in a sweet spot. Most of its
targetmarketsareinphases3and4,whereLCOsaresmallandkeeplosingshareto
DTH providers. This leads us to believe that Ortel can indeed achieve its 1mn RGU
targetbyFY17.
CableARPUtoimproveby20%aftercompletedigitisationofphase3/4areas
OrtelscurrentanalogcableARPUisRs140ata20%discounttothedigitalcable
ARPU.Whentheentirephase3/4areasaredigitisedandtheentiresubscriberbaseis
onadigitalplatform,weexpectcableARPUtoincreaseby20%.DigitalcableARPU
would be higher than analog due to packaging and tiering. Similarly, current
penetration of HD subscribers is <1%, and hence increased penetration of HD
subscriberscanprovideimpetustocableservicesARPU(HDARPUisRs7580higher
thandigitalcableARPU).
Carriagerevenuetoincreaseby10%overFY1618
Carriage revenue (1819% of the total operating revenue) should increase by 10%
overFY1618,despitecompletedigitisationofphase3/4areas.Ortelwillcontinueto
command carriage/placement revenue from broadcasters due to its leadership
position in the Orissa market. It is in the process of increasing its footprint outside
Orissa and by FY1718, RGUs from noncore markets should constitute 40% of its
overallmix.It currentlyreceivesminimalcarriagerevenuesfromnoncoremarkets.
Therefore, when it achieves a meaningful subscriber base, it would be a better
positiontocommandcarriagerevenuefrombroadcasters.
Historicalandforecastedrevenuegrowthrates
FY13
FY14
FY15
FY16
FY17E
FY18E
CAGR
CableTVservicesrevenue
12
12
31
84
308
131
62%
CableSubscriptionFees
674
757
790
866
1,470
1,977
24%
ChannelCarriagefees
207
205
264
356
384
415
15%
17
19
26
38
61
49%
246
258
270
303
452
745
25%
IncomefromInfrastructureLeasing
22
145
213
160
136
44%
OtherOperatingIncome
29
29
29
30
30
31
1%
ConnectionFees
Broadbandservicesrevenue
ConnectionFees
InternetSubscriptionFees
Otherrevenuestream
Source:PhillipCapitalIndiaResearchEstimates
EBITDAmarginstoimproveby300400bps
We believe there are multiple levers for Ortel to improve its EBITDA margins (ex
connectionfees)by300400bpsoverthenextcoupleofyears.
CableARPUtoimproveby20%
Consolidated cable ARPU to increase by 20%, which would be primarily driven by
digitisationandimplementationofpackagingandtiering.
PenetrationofbroadbandRGUstoriseto15%inFY18fromcurrent10%inFY16
Currently, Ortels broadband RGUs constitute only 10% of its total RGUs, as the
demandforwiredbroadbandinmarketswhereitoperatesisyettogatherfullsteam.
The demand ecosystem for broadband consumption will continue to evolve, and
Ortel has already deployed broadbandready twoway communication networks in
mostofitsmarkets.WeexpectitsbroadbandRGUpenetrationtoimproveto15%by
FY18, as it becomes more aggressive in its promotional activities. 4G launches by
various telecom service providers would boost demand for cheap highspeed data,
which only cable broadband service providers can offer. The ARPU of a broadband
RGU is 2.5x digital cable ARPUs and commands 7580% gross margins. Hence,
increasedpenetrationofbroadbandwillimproveEBITDAmargins.
EstimatedgrowthofbroadbandRGUs
BroadbandRGU
205000
asa%oftotalRGU(rhs)
17%
185000
16%
165000
15%
145000
14%
125000
13%
105000
12%
85000
11%
65000
10%
45000
9%
FY13
FY14
FY15
FY16E
FY17E
FY18E
ARPUcomparisonofvariousproducts
AnalogcableARPU
DigitalcableARPU
BroadbandARPU
FY16
141
178
398
Operatingmarginsofemergingmarkettoimprove
CurrentlyOrtelsemergingmarketsbusinesscontributesto10%ofthetotalrevenue,
butconstitutes 24% ofthe total RGUs. EBITDA margin of the emerging markets is
30% vs. 47% in core markets. The reason for lower margins can be attributed to
Ortelsrecententryintonewmarkets,whichhasresultedinhigherfixedcost.Once
the company achieves scale in emerging markets and starts crossselling its high
marginbroadbandbusiness,marginscanimprovesignificantlyfromcurrentlevels.
Ortelhasalreadydeployedbroadband
readytwowaycommunication
networksinmostofitsmarkets
Operatingmatricesofcorevs.emergingmarkets
Revenue(inRsmn)
EBITDA(inRsmn)
Margins(%)
Homepassed
RGU
Core
Emerging
1,676
779
47%
8,03,568
535126
190
57
30%
3,78,564
166066
Contentcostlikelytoincreaseatlessthaninflationarypace
Ortel has tiedup itscontent cost agreement with mostbroadcasters on afixedfee
basis, with an annual escalation clause of 510%. Also, Ortel operates in a market
wherethedemandforregionalcontentismuchhigherandcostofregionalcontentis
muchlowerthanHindicontent(onapersubscriberbasis).Hence,thecontentcost
percableRGUforthecompanyislikelytoincreaseatlessthaninflationarypace(2
3%)andislikelytolagcableARPUgrowth.
Estimatedcontentcostgrowthforthecompany
ContentcostpercableRGU
Contentcosta%oftotalcablesubscriptionrev(rhs)
62
50%
61
40%
60
59
30%
58
20%
57
56
10%
55
0%
54
FY13
FY14
FY15
FY16E
FY17E
FY18E
Weestimatethatoverthenextcoupleofyears,itwillsseeanEBITDACAGRof46%
withmarginsimprovingby500bps.
EBITDAandmargingrowthestimates
1400
EBITDA
40%
Margin(%)
1200
1000
800
600
400
200
0
30%
FY15
FY16E
FY17E
FY18E
AB2CcompanyavailableatB2Bvaluations
Over the last few years, investors have been disappointed with the poor operating
performance of listed MSOs, which has translated into their desultory stockprice
performance. The governments DAS mandate was the big hope for MSOs (with
encrypted signals and deployment of STBs at the customers premises, 100%
subscriber addressability was ensured, which was supposed to result in improved
shareofARPUsforMSOs).WhiletheseedingofSTBswasdoneontime,ithasonly
been a technical digitisation and not true digitisation the process of collecting
consumerleveldataandtheimplementationofpackaging/tieringhasbeenpainfully
slow.
SnapshotofHathwaysconsolidatedfinancials
PBIDTM(%)
CFO
Purchaseoffixedassets
FCFF
FY13 FY14
25.7
19.2
663 2,340
4,680 8,372
4,017 6,033
FY15
15.6
2,263
4,408
2,145
Comment
Margincontinuestodeclineascontentcostburdenisbornebythecompany
NomarkedimprovementinCFOasARPUremainsstagnant
Dependentonexternalfundingtomeetitscashflowrequirement
Source:ACEEquity,PhillipCapitalIndiaResearch
While other MSOs floundered, Ortel demonstrated improved financial performance

duetoitsstrategyoflastmileownershipofitssubscriber.InFY1315,itsanalogcable
ARPUimprovedtoRs145fromRs136whileEBITDAmarginimprovedto31.3%from
20%.Lastmileownershipstructureensuredtherewasminimalleakageofrevenueto
LCOs and cross selling of broadband products to the subscriber, which resulted in
higherrevenuerealisationpersubscriber.
SnapshotofOrtelsfinancials
(Rsmn)
PBIDTM(%)
CFO
Purchaseoffixedassets
FCFF
FY13
20.2
514
83
431
FY14
26.2
481
139
342
FY15
31.3
663
329
334
Source:ACEEquity,PhillipCapitalIndiaResearch
DespiteitssuperioroperatingandfinancialmatricesvisavisotherlistedMSOs,Ortel
tradesatparwiththemonanEV/EBITDAbasis,whichweconsiderunjustified.
EV/EBITDA
(x)
Ortel
Hathway
DenNetworks
SitiCable
FY16E
10.5
10.1
17.6
10.0
Source:Bloomberg,PhillipCapitalIndiaResearch
ThegovernmentsDASmandatewas
thebighopeforMSOs,butithasonly
beenatechnicaldigitisationandnot
truedigitisation
FY17E
6.9
6.8
4.9
8.0
FY18E
5.3
5.6
3.2
5.7
InitiatecoveragewithaoneyearPTofRs300
1) Over the last few years, Ortel has shown strong execution capabilities in
increasing its subscriber footprint while maintaining its DNA of controlling the
lastmile connectivity. It has also excelled in providing tripleplay services in its
coremarket.
2) Ortelwillcontinuedisplayingimprovedoperatingperformanceonhigherdigital
cable (aided by governmentmandated digitisation) and broadband subscriber
additions.ItisoncoursetoclockRs1/1.3bnEBITDAbyFY17/18implyingaCAGR
of46%.
3) The consolidated ARPU of its cable subscribers will increase by 20% on
digitisationandmigrationofanalogcablesubscriberstothedigitalplatform.
4) Itsinvestmentsinitsnetworkandplatformputitinastrongpositiontobenefit
fromrisingdemandforhighbandwidthbroadbandservices.
5) The companys assets and managements continued execution warrant a
premiummultiple.
WevaluethecompanyonDCF,usingaWACCof12%,andterminalgrowthrateof5%
toarriveataMarch2017targetofRs300,atwhichthestockwilltradeat10x/8x
FY17/18EV/EBITDA.
HowwederivedourDCFvaluation
Rsmn
EBITDA
Tax
Noncompetepayout
Wcapchanges
Capex
FCFF
DiscFactor
PVofFCF
FY17E
1,043
(234)
30
(1,466)
(628)
1.00
(628)
FY18E
1,325
(398)
(275)
(0)
(747)
(94)
1.12
(84)
FY19E
1,576
(473)
(312)
(0)
(371)
420
1.26
334
FY20E
1,815
(544)
(351)
(1)
(348)
571
1.41
405
FY21E
2,047
(614)
(314)
(1)
(401)
718
1.58
454
FY22E
2,287
(686)
(224)
(1)
(382)
994
1.77
561
FY23E
2,542
(763)
(212)
(1)
(325)
1,241
1.99
625
FY24E
2,805
(841)
(200)
(1)
(289)
1,474
2.23
661
WACCcalculation
Riskfreerate
Riskpremium
Beta
Costofequity
PosttaxCostofdebt
D/Eratio
WACC
Terminalgrowthrate
7.8%
6.0%
1.2
15.0%
9.5%
1.03
12.1%
5.0%
Valuationdate(Rsmn)
PVofCF
FCFFinterminalyear
TVofCF
ImpliedexitFCFFmultiple(x)
FCFF
ImpliedexitEV/EBITDA(x)
Netdebt
FCFE
O/sshares
Valuepershare(Mar15)
Upside/downside
33117
2,957
1,474
9,749
14.7
12,706
7.7
3,543
9,163
30
302
68%
Keyrisksandconcerns
(1) Increased competitive activity Entry of a new player with deep pockets can
disrupt the pricing scenario in both cable and broadband services. However,
sinceOrtelownsthelastmile,itisinabetterpositiontoretainitscustomerbase
byofferingsimilarpricepoints
(2) Sharp drop in wireless data tariffs Currently, wireless data tariff is 78x of
DOCSIS3.0datatariff;notsurprisingly,subscriberspreferwirelinebroadbandfor
heavydatausage.Ifwirelessserviceproviderscuttheirdatatariffstomatchthe
price of wireline providers, then Ortels subscriber growth will moderate
significantly. However, wireless service providers are still grappling with
spectrumcrunchanddebtburden,so,itisveryunlikelythattheywillcuttariffs
tosuchanextent
Aboutthecompany
RegionalcabletelevisionandbroadbandproviderfocusedontheIndianstatesof
Odisha, Chhattisgarh, Madhya Pradesh, Andhra Pradesh, Telengana, and West
Bengal.
Total addressable market of ~5mn; currently has 701,192 revenue generating
units.
Strictly follows a directtoconsumer business model, which allows full control
overthelastmile(91%ofitssubscriberbaseisunderitsownnetwork).
Builtatwowaycommunicationnetworkfortripleplay(TV/data/voice)service
delivery for its customer. It uses a HFC (hybrid fibre coaxial) network
(combinationofopticfibreinthebackboneandcoaxialcableinthedownstream)
withlegalrightsofwayforlayingnetwork.
Itsnetworkiscapableofprovidingbroadbandataspeedofupto100mbpsby
usingcablemodemwithDOCSIStechnology.
Ortelbeganoperationsin1995;currently,itsbusinessisbroadlydividedinto:
(1)Cabletelevisionservicescomprisingof:
Analogcabletelevisionservices
Digitalcabletelevisionservices,includingothervalueaddedservicessuchasHD,
NVoD,gaming,andlocalcontent
(2)Broadband
(3)Leasingoffibreinfrastructure
(4)Signaluplinking
The company has grown both organically and inorganically through buyout of
network equipment, infrastructure, and subscribers of other MSOs and LCOs. It
converts acquired subscribers to primary subscribers and improves the quality of
services by upgrading or rebuilding their network with the lastmile connection. By
improvingthequalityandprovidingvalueaddedservices,Ortelisabletolimitlarge
scalecustomerattritiontocompetingserviceplatformssuchasDTHprovidersandis
alsoabletoincreaseitsrevenueperuser.
Historicalrevenuebreakup
Incomefrom
Infrasturacture
Leasing,11.3%
FY16
OtherOperating
Income,1.6%
ConnectionFees
CableTV,4.5%
Internet
SubscriptionFees,
16.1%
ConnectionFees
Internet,1.4%
ChannelCarriage
fees,19.0%
CableSubscription
Fees,46.1%
Source:Company
Historicalbreakupofoperatingcost
EmployeeBenefits
Expense,18%
OtherExpenses,
46%
BandwidthCost,
7%
Programming
Cost,30%
Source:Company
Keymilestones
Year
1995
1998
1999
2000
2004
2005
2006
2007
2008
2009
2010
2011
2014
2016
Events
StartedbusinessinOdisha
OneofthefirstprivatesectorcompaniesinIndiatoobtainISPlicenseandstartitshighspeed
internetservices
InvestmentofRs85mnbySouthAsiaRegionalFundwhichismanagedbyaMauritiansubsidiary
ofCommonwealthDevelopmentCorporation,UnitedKingdom
OperationsexpandedtootherpartsofOdisha
ISO9001:2000certified
Crossed100,000RGUs
LegalrightofwaygrantedoutsideOdishainChattisgarh
(1)LegalrightofwaygrantedoutsideOdishainWestBengalandAndhraPradesh,(2)
commencementofprovisionofdigitalservices
(1)InvestmentofRs600mnbyNSR,(2)Crossed200,000RGUs,(3)Serviceslaunchedoutside
OdishainWestBengal,AndhraPradeshandChhattisgarh
Crossed300,000RGUs
Pilotprojectofinternettelephonysuccessfullylaunched
Crossed400,000RGUs
Crossed500,000RGUs
Crossed700,000RGUs
Source:Company
Keymanagementpersonnel
Mr.BibhuPrasadRath
Mr.ManojKumarPatra
Col.ManMohanPattnaik
Mr.ChittaRanjanNayak
Mr.JijiJohn
PresidentandCEO
Withthecompanysince1999
BachelorsdegreeinsciencefromUtkalUniversity
Qualifiedcostandworksaccountant
MEPfromIIMAhmedabad
CFO
BachelorsdegreeinsciencefromBerhampur
University
Charteredaccountant
PreviouslywithRelianceRetail
ChiefTechnicalOfficer
Bachelorsdegreeinelectronicsand
telecommunicationsfromtheInstituteofElectronics
andTelecommunicationsEngineers,Delhi
Postgraduatediplomainbusinessmanagementfrom
theIndianInstituteofManagementStudies,New
Delhi
SeniorVicePresident(Operations)
BachelorsdegreeinengineeringfromtheInstituteof
EngineersIndiaandapostgraduatediplomain
businessmanagementfromInstituteofManagement
Technology.
Currentlyheadsthecompanysoperationsandits
marketingactivities
VicePresidentBroadbandbusiness
Over18yearsofexperienceinstrategicplanning,
salesandmarketing,businessdevelopment,CRM
ManagementgraduatefromXIM,Bhubaneswar,and
BEfromBITS,Mesra
Source:Company
Financials
IncomeStatement
Y/EMar,Rsmn
Netsales
Growth,%
Totalincome
Rawmaterialexpenses
Employeeexpenses
OtherOperatingexpenses
EBITDA(Core)
Growth,%
Margin,%
Depreciation
EBIT
Growth,%
Margin,%
Interestpaid
Pretaxprofit
Taxprovided
Profitaftertax
Others(Minorities,Associates)
NetProfit
Growth,%
NetProfit(adjusted)
Unadj.shares(m)
Wtdavgshares(m)
CashFlow
FY15
1,548
20
1,548
0
167
848
533
42.7
34.5
300
233
140.7
15.1
226
70
15
56
0
56
(158.1)
56
30
30
FY16e
1,878
21
1,878
0
225
1,035
618
15.9
32.9
317
301
29.2
16.0
236
151
31
120
0
120
115.7
120
30
30
FY17e
2,842
51
2,842
0
341
1,458
1,043
68.7
36.7
574
469
55.8
16.5
240
315
63
252
0
252
109.3
252
30
30
FY18e
3,496
23
3,496
0
397
1,774
1,325
27.1
37.9
703
623
32.8
17.8
496
213
43
170
0
170
(32.4)
170
30
30
FY15 FY16e FY17e

1,184
290
803
181
313
428
5
130
130
157
408
618
12
25
37
1,540 1,166 2,017
3
3
3
3,084 4,512 6,695
1,037 1,354 1,928
123
123
123
2,169 3,280 4,889
3,741 4,503 6,991
1,389 1,872 2,413

3
6
9
1,393 1,878 2,422
1,077 1,230 2,922
2,470 3,108 5,344
304
304
304
967 1,091 1,343
1,271 1,395 1,647
3,741 4,503 6,991
FY18e
1,336
527
130
760
46
2,799
3
7,611
2,631
123
5,103
8,006
2,780
11
2,792
3,397
6,189
304
1,514
1,817
8,006
BalanceSheet
Y/EMar,Rsmn
Cash&bank
Debtors
Inventory
Loans&advances
Othercurrentassets
Totalcurrentassets
Investments
Grossfixedassets
Less:Depreciation
Add:CapitalWIP
Netfixedassets
Totalassets
Currentliabilities
Provisions
Totalcurrentliabilities
Noncurrentliabilities
Totalliabilities
Paidupcapital
Reserves&surplus
Shareholdersequity
Totalequity&liabilities
Pretaxprofit
Depreciation
Chginworkingcapital
Totaltaxpaid
Cashflowfromoperatingactivities
Capitalexpenditure
Chgininvestments
Otherinvestingactivities
Cashflowfrominvestingactivities
Freecashflow
Equityraised/(repaid)
Debtraised/(repaid)
Cashflowfromfinancingactivities
Netchgincash
FY15 FY16e
70
151
300
317
441
29
15
31
663
350
455 1,428
0
0
70
449
385
978
278
629
69
0
224
63
809
11
1,087
618
FY17e
315
574
671
63
1,010
2,183
0
557
1,626
617
0
1,200
1,130
514
FY18e
213
703
76
43
1,282
916
0
47
869
413
0
500
120
533
FY15 FY16e
FY17e
FY18e
ValuationRatios
PerSharedata
EPS(INR)
Growth,%
BookNAV/share(INR)
FDEPS(INR)
CEPS(INR)
CFPS(INR)
Returnratios
Returnonassets(%)
Returnonequity(%)
Returnoncapitalemployed(%)
Turnoverratios
Assetturnover(x)
Sales/Totalassets(x)
Sales/NetFA(x)
Workingcapital/Sales(x)
Receivabledays
Inventorydays
Payabledays
Workingcapitaldays
Liquidityratios
Currentratio(x)
Quickratio(x)
Interestcover(x)
Totaldebt/Equity(%)
Netdebt/Equity(%)
Valuation
PER(x)
PEG(x)yoygrowth
Price/Book(x)
EV/Netsales(x)
EV/EBITDA(x)
EV/EBIT(x)
1.8
(158.1)
41.9
1.8
11.7
26.6
4.0
115.7
45.9
4.0
14.4
12.1
8.3
109.3
54.2
8.3
27.2
50.2
5.6
(32.4)
59.8
5.6
28.7
31.9
6.5
4.4
10.3
6.6
8.6
10.9
7.0
15.3
11.2
6.4
9.4
9.7
1.2
1.1
1.0
1.1
0.5
0.5
0.5
0.5
0.7
0.7
0.7
0.7
(0.7) (0.5)
(0.4)
(0.4)
42.8
60.9
55.0
55.0
1.2
25.3
16.7
13.6
74.9
75.3
79.8
81.4
(243.7) (193.5) (154.1) (137.6)
1.1
0.6
0.8
1.0
1.1
0.6
0.8
1.0
1.4
2.0
3.0
1.5
87.0
92.8 151.4 164.8
(6.2)
72.0 102.7
91.2
97.9
45.4
21.7
32.1
(0.6)
0.4
0.2
(1.0)
4.3
3.9
3.3
3.0
3.5
3.4
2.5
2.0
6.9
5.4
10.1
10.5
23.1
21.5
15.3
11.4
RatingMethodology
Weratestockonabsolutereturnbasis.Ourtargetpriceforthestockshasaninvestmenthorizonofoneyear.
Rating
Criteria
Definition
BUY
>=+15%
Targetpriceisequaltoormorethan15%ofcurrentmarketprice
NEUTRAL
15%>to<+15%
Targetpriceislessthan+15%butmorethan15%
SELL
<=15%
Targetpriceislessthanorequalto15%.
Management
VineetBhatnagar(ManagingDirector)
KinshukBhartiTiwari(HeadInstitutionalEquity)
JigneshShah(HeadEquityDerivatives)
(9122)24831919
(9122)66679946
(9122)66679735
Research
Automobiles
DhawalDoshi
NiteshSharma,CFA
Banking,NBFCs
ManishAgarwalla
PradeepAgrawal
PareshJain
Consumer&Retail
NaveenKulkarni,CFA,FRM
JubilJain
PreeyamTolia
Cement
VaibhavAgarwal
Economics
AnjaliVerma
Engineering,CapitalGoods
JonasBhutta
(9122)66679769
(9122)66679965
(9122)66679962
(9122)66679953
(9122)66679948
(9122)66679947
(9122)66679766
(9122)66679950
(9122)66679967
(9122)66679969
(9122)66679759
ITServices
VibhorSinghal
(9122)66679949
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(9122)66679992
Infrastructure
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(9122)66679949
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(9122)66679944
Logistics,Transportation&Midcap
VikramSuryavanshi
(9122)66679951
Media
ManojBehera
(9122)66679973
Metals
DhawalDoshi
(9122)66679769
YashDoshi
(9122)66679987
Midcap
AmolRao
(9122)66679952
MidCaps&DatabaseManager
DeepakAgarwal
(9122)66679944
Oil&Gas
SabriHazarika
(9122)66679756
Pharma&SpecialityChem
SuryaPatra
(9122)66679768
MehulSheth
(9122)66679996
Strategy
(9122)66679947
AnindyaBhowmik
(9122)66679764
Telecom
(9122)66679947
ManojBehera
(9122)66679973
Technicals
SubodhGupta,CMT
(9122)66679762
ProductionManager
GaneshDeorukhkar
(9122)66679966
Editor
RoshanSony
9819972726
Sr.ManagerEquitiesSupport
RosieFerns
(9122)66679971
SalesTrader
DileshDoshi
SuniilPandit
ZarineDamania
(9122)66679747
(9122)66679745
Execution
MayurShah
(9122)66679945
Sales&Distribution
AshvinPatil
ShubhangiAgrawal
KishorBinwal
BhavinShah
AshkaMehtaGulati
ArchanVyas
CorporateCommunications
(9122)66679991
(9122)66679964
(9122)66679989
(9122)66679974
(9122)66679934
(9122)66679785
(9122)66679976
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anywarrantyastotheaccuracyorcompletenessofsuchinformation.Anypersonplacingrelianceonthereporttoundertaketradingdoessoentirelyathisor
herownriskandPCIPLdoesnotacceptanyliabilityasaresult.SecuritiesandDerivativesmarketsmaybesubjecttorapidandunexpectedpricemovements
andpastperformanceisnotnecessarilyanindicationoffutureperformance.
Thisreportdoesnotregardthespecificinvestmentobjectives,financialsituation,andtheparticularneedsofanyspecificpersonwhomayreceivethisreport.
Investorsmustundertakeindependentanalysiswiththeirownlegal,tax,andfinancialadvisorsandreachtheirownconclusionsregardingtheappropriateness
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whichPCILbelieveisreliable.PhillipCapital(India)Pvt.Ltd.oranyofitsgroup/associate/affiliatecompaniesdonotguaranteethatsuchinformationisaccurate
orcompleteanditshouldnotberelieduponassuch.Anyopinionsexpressedreflectjudgmentsatthisdateandaresubjecttochangewithoutnotice.
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AdditionalDisclosuresofInterest:
UnlessspecificallymentionedinPointNo.9below:
1. TheResearchAnalyst(s),PCIL,oritsassociatesorrelativesoftheResearchAnalystdoesnothaveanyfinancialinterestinthecompany(ies)coveredin
thisreport.
2. TheResearchAnalyst,PCILoritsassociatesorrelativesoftheResearchAnalystaffiliatescollectivelydonotholdmorethan1%ofthesecuritiesofthe
company(ies)coveredinthisreportasoftheendofthemonthimmediatelyprecedingthedistributionoftheresearchreport.
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researchreport.
4. TheResearchAnalyst,PCIL,anditsassociateshavenotreceivedcompensationforinvestmentbankingormerchantbankingorbrokerageservicesorfor
anyotherproductsorservicesfromthecompany(ies)coveredinthisreport,inthepasttwelvemonths.
5. TheResearchAnalyst,PCILoritsassociateshavenotmanagedorcomanagedintheprevioustwelvemonths,aprivateorpublicofferingofsecuritiesfor
thecompany(ies)coveredinthisreport.
6. PCIL or its associates have not received compensation or other benefits from the company(ies) covered in this report or from any third party, in
connectionwiththeresearchreport.
7. TheResearchAnalysthasnotservedasanOfficer,Director,oremployeeofthecompany(ies)coveredintheResearchreport.
8. TheResearchAnalystandPCILhasnotbeenengagedinmarketmakingactivityforthecompany(ies)coveredintheResearchreport.
9. DetailsofPCIL,ResearchAnalystanditsassociatespertainingtothecompaniescoveredintheResearchreport:
Sr.no. Particulars
Yes/No
1
Whether compensation has been received from the company(ies) covered in the Research report in the past 12 months for
No
investmentbankingtransactionbyPCIL
2
WhetherResearchAnalyst,PCILoritsassociatesorrelativesoftheResearchAnalystaffiliatescollectivelyholdmorethan1%ofthe
No
company(ies)coveredintheResearchreport
3
WhethercompensationhasbeenreceivedbyPCILoritsassociatesfromthecompany(ies)coveredintheResearchreport
No
4
PCIL or its affiliates have managed or comanaged in the previous twelve months a private or public offering of securities for the
No
company(ies)coveredintheResearchreport
5
ResearchAnalyst, hisassociate,PCILoritsassociateshavereceived compensationforinvestmentbankingormerchantbankingor
No
brokerage services or for any other products or services from the company(ies) covered in the Research report, in the lasttwelve
months
Independence: PhillipCapital (India) Pvt. Ltd. has not had an investment banking relationship with, and has not received any compensation for investment
banking services from, the subject issuers in the past twelve (12) months, and PhillipCapital (India) Pvt. Ltd does not anticipate receiving or intend to seek
compensationforinvestmentbankingservicesfromthesubjectissuersinthenextthree(3)months.PhillipCapital(India)Pvt.Ltdisnotamarketmakerinthe
securitiesmentionedinthisresearchreport,althoughit,oritsaffiliates/employees,mayhavepositionsin,purchaseorsell,orbemateriallyinterestedinany
ofthesecuritiescoveredinthereport.
Suitability and Risks: This research report is for informational purposes only and is not tailored to the specific investment objectives, financial situation or
particularrequirementsofanyindividualrecipienthereof.Certainsecuritiesmaygiverisetosubstantialrisksandmaynotbesuitableforcertaininvestors.
Eachinvestormustmakeitsowndeterminationastotheappropriatenessofanysecuritiesreferredtointhisresearchreportbaseduponthelegal,taxand
accountingconsiderationsapplicabletosuchinvestoranditsowninvestmentobjectivesorstrategy,itsfinancialsituationanditsinvestingexperience.The
value of any security may be positively or adversely affected by changes in foreign exchange or interest rates, as well as by other financial, economic, or
politicalfactors.Pastperformanceisnotnecessarilyindicativeoffutureperformanceorresults.
Sources,CompletenessandAccuracy:ThematerialhereinisbaseduponinformationobtainedfromsourcesthatPCIPLandtheresearchanalystbelievetobe
reliable,butneitherPCIPLnortheresearchanalystrepresentsorguaranteesthattheinformationcontainedhereinisaccurateorcompleteanditshouldnot
berelieduponassuch.Opinionsexpressedhereinarecurrentopinionsasofthedateappearingonthismaterial,andaresubjecttochangewithoutnotice.
Furthermore,PCIPLisundernoobligationtoupdateorkeeptheinformationcurrent.Withoutlimitinganyoftheforegoing,innoeventshallPCIL,anyofits
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ForU.S.personsonly:ThisresearchreportisaproductofPhillipCapital(India)PvtLtd.,whichistheemployeroftheresearchanalyst(s)whohaspreparedthe
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sender.Further,thisreportmaynotbecopied,duplicated,and/ortransmittedonwardtoanyU.S.person,whichisnotaMajorInstitutionalInvestor.
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TransactionsinsecuritiesdiscussedinthisresearchreportshouldbeeffectedthroughDecker&Co,LLCoranotherU.S.registeredbrokerdealer
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INSTITUTIONALEQUITYRESEARCH

Highest operating margins among peers: Ortels lastmile connectivity allows it to

SitiCable DenNetworks Indigital

Higher return on investment: Providing broadband services via cable networks

While other MSOs floundered, Ortel demonstrated improved financial performance

FY15 FY16e FY17e

1,389 1,872 2,413

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