Ortel Communications LtdQ2 FY16Entertainment

Ortel Communications Ltd

Q2 FY16 Earnings Call Analysis

Management growth scorecard

Revenue

Category 2

Margin

Category 3

Fundraise

Yes

Order

Yes

Capex

Yes

3 of 5 growth signals are positive.

Revenue guidance

Category 2

→The company aims to achieve a 1 million subscriber base by March 2017, with strong acquisition pipelines supporting this target (Page 15).
→Broadband business shows value-led growth potential, with new high-speed DOCSIS 3.0 internet plans introduced to improve trajectory (Page 8).
→Revenues from cable TV and broadband have grown robustly by 45% and 26% respectively in recent quarters, indicating strong sales momentum (Page 8).
→Infrastructure leasing income is expected to improve quarter-on-quarter, potentially matching or exceeding last year's revenue by year-end, though it's not the core focus (Page 7).
→Digital penetration improvements and new broadcaster deals on Reference Interconnect Offer (RIO) basis are projected to reduce content costs and improve ARPUs, aiding revenue growth (Page 17).
→Continued focus on inorganic subscriber acquisitions, expected to enhance profitability over time (Page 14).

Category 3

→Company expects overall profitability to improve as inorganic subscriber acquisitions stabilize and margins increase.
→Non-Odisha markets, which are driving majority of new acquisitions, are expected to turn EBITDA positive during the current fiscal year.
→EBITDA losses primarily arise from older organic markets; newer inorganic markets are generally profitable or marginally positive from the start.
→Operating margins in Odisha remain stable around 40%, with slight pressure from reduced infrastructure leasing income.
→Programming content cost savings expected from new RIO (Reference Interconnect Offer) deals with major broadcasters, leading to lower costs from Q2 onwards.
→Long-term revenue growth driven by increased digital penetration and broadband subscriber additions, with broadband ARPU improving.
→CAPEX guidance of Rs.120-130 crore expected to support subscriber growth and infrastructure expansion with payback under 4 years.
→Management confident of steady ARPU improvements and better churn management post-digitization to enhance profitability.

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Yes

→No plans to raise more equity; existing stock of materials and inventory available.
→CWIP (Capital Work in Progress) around Rs. 70 crore, with Rs. 50-60 crore worth of materials to be used.
→Planned to raise some debt to fund balance requirements.
→Originally planned to raise Rs. 100 crore equity and Rs. 100 crore term debt for 1 million subscriber plan.
→So far, only Rs. 40-45 crore term debt raised; balance Rs. 50-60 crore debt to be raised this year.
→Materials on hand plus planned debt will fund the expansion; no equity raising intended.

Yes

→Currently, no new execution of infrastructure leasing orders has been recorded this quarter; income is entirely from recurring monthly charges.
→Several orders are pending for execution and are in the negotiation stage.
→Some very large orders are under negotiation, expected to give a significant boost to revenue once finalized.
→Pending orders involve mainly Telcos and infrastructure companies that lease fiber to corporates.
→The order book is expected to improve quarter-on-quarter with the potential of matching or exceeding last year's revenue levels from infrastructure leasing.
→Full clarity on order status and execution is planned to be provided at the end of the current quarter.

Yes

→Capex guidance for FY17 is around Rs. 120-130 crore, which includes the entire business including broadband.
→Capital cost per subscriber is Rs. 4,000 (Rs. 3,000 organic + Rs. 1,000 to LCOs), with expected addition of ~230,000 subscribers leading to Rs. 90 crore upfront capital.
→Additional Rs. 30-40 crore expected to complete analog to digital migration for about 300,000 remaining analog subscribers.
→No plans to raise more equity for funding; expects to raise Rs. 50-60 crore of additional debt this year to meet funding requirements.
→Significant investment continues in digitization under Phase-III to increase digital penetration from 44% upwards.
→Infrastructure leasing business not a core focus but leverage existing fiber network for additional revenue.
→Selected OPEX model for digital bandwidth connectivity to reduce upfront CAPEX and manage recurring costs efficiently.

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