Ortel Communications Ltd IPO Review (Avoid)

Ortel Communications is a flagship company of Panda group and is a regional cable television and high speed broadband services provider focused in the Indian states of Odisha, Chhattisgarh, Andhra Pradesh and West Bengal. It has built a two-way communication network for 'Triple Play' services (video, data and voice capabilities) with control over the 'last mile' and has 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. The company holds a dominant position in Orissa, with a fast-emerging presence in our three other markets, covering an addressable market of approximately five million under the brand names, 'Ortel Home Cable', 'Ortel Digital' and 'Ortel Broadband'. Now to expand its network for providing Video, data and meeting the capital expenditure of digital cable services and broadband services and raising general corpus fund, the company is coming out with book building process issue of 1,20,00,000 equity share of Rs. 10 each with a price band of Rs. 181-200 and targeting to raise between Rs. 217.20-240 crore. The issue consists of 60,00,000 fresh equity issue and 60,00,000 offer for sale by existing stakeholders. 75% shares are reserved for QIBs, 15% for HNIs and just 10% to retail investors. Minimum application is to be made for 75 shares and in multiples thereon, thereafter. Issue is lead managed by Kotak Mahindra Capital Co. Ltd and Karvy Computershare Pvt Ltd is the registrar to the issue. Post allotment the shares will be listed on BSE and NSE.

Issue opens on 03.03.15 and will close on 05.03.15. On 2nd March, it is inviting bids from Anchor Investors. Post issue, equity share capital of the company will stand at Rs. 30.37 crore. The issue will dilute 39.25% equity on the basis of post issue paid up capital. Between October 1999 and July 2014 it issues equity shares at a premium ranging from Rs. 5 to Rs. 135 per share to reach paid up capital of Rs. 24.37 crore. For last three fiscals it has posted an average negative EPS of Rs. 7.63 and thus it has negative P/E and NAV of Rs. 8.31 as on 30.09.14. Thanks to premium collected on preferential issue that has helped more erosion in NAV.  

On performance front, the company has incurred losses till last fiscal. For the first half of fiscal 2014-15 it has clocked in turnover of Rs. 71.93 crore with a net profit of just Rs. 0.66 crore. It has carried forward losses. Based on this, if we annualized the earnings on the post issue expanded equity of Rs. 30.37 crore, then it is at a P/E of 400 plus and thus is aggressively priced. Although management claimed that in India no exact peer is available for comparison as this is the only company with 90% plus 'last mile' distribution. But then the pricing is discounting its next two years earnings and thus has nothing on table for new investors. On merchant banker's front, as per Chittorgarh.com data, it has 49 mandates in the past out of which 14 issues failed to give listing gains. Thus the ratio of success is around 60%.

As SEBI has done away with, this offer has not opted for any grading, has neither any safety net nor any discount for retail investors.