Ortel refiles for IPO to raise around $20M; New Silk Route to exit with around 2x

Regional cable TV and broadband distribution firm Ortel Communications Ltd has re-filed its draft red herring prospectus (DRHP) for its maiden public offering with market regulator SEBI. Private equity firm New Silk Route (NSR), which was earlier looking to part exit, has now offered to sell all its shares, which could mark its debut exit from a portfolio in India.

Ortel had previously looked at a public float around four years ago, when NSR was looking to exit completely. However, it did not go ahead with the IPO due to poor market conditions. Last year it had refiled its documents but later withdrew it.

Based out of Odisha, Ortel is promoted by the family of businessman-turned-MP from Biju Janata Dal, Jay Panda. It is looking to raise Rs 100-125 crore (around $20 million) through the fresh issue of shares besides offer for sale by NSR which is estimated to fetch around Rs 150-200 crore ($25-33 million).

Although NSR would double its investment value, given the long holding period it would pocket a modest internal rate of return (IRR) of 11-12 per cent, as per VCCircle estimates.

Ortel becomes the fourth firm to file for an IPO since the new government took over in May, the others being Lavasa Corp, Monte Carlo and Adlabs Entertainment.

Two firms floated their issue over the last one month: Sharda Cropchem and Snowman Logistics, both seeing 59x oversubscription. Snowman listed with a dream debut on Friday. Both Sharda Cropchem and Snowman Logistics were PE backed.

Here's a snapshot of the proposed issue

– Fresh issue of 6 million shares and offer for sale of 8.18 million shares by NSR.

- Company looking to raise a little over Rs 100 crore.

- Total equity dilution of 46.38 per cent, valuing the firm around $100 million.

- The promoters group currently owns 64 per cent stake in the company which will shrink to around 51 per cent.

- NSR owns 33.58 per cent and is looking to exit completely.

- May go for pre-IPO placement to raise up to Rs 65 crore.

- Kotak Mahindra Capital is managing the issue as against IDFC Capital and Equirus Capital who were the book running lead managers to the proposed issue last year.


- The company is engaged in distribution of analogue and digital cable television services, high speed broadband services and VoIP services.

- Operates in the states of Odisha, Chhattisgarh, Andhra Pradesh and West Bengal. Its services are provided under the brand names Ortel Home Cable, Ortel Digital and Ortel Broadband.

- As on March 31, 2014, 88.02 per cent of its cable subscriber base was on its own ‘last mile’ network.

– It currently offers services in 48 towns and certain adjacent semi urban and rural areas with over 21,600 kilometres of cables supported by 34 analog head-ends and five digital head-ends.

- As of June 30, 2014, it had 3,88,115 retail subscribers for its analog cable television services, 74,213 retail subscribers for digital cable television services and 55,861 broadband retail subscribers.


- It plans deeper penetration in existing geographies and entry into new geographies analogue such as Madhya Pradesh.

- Push up the proportion of digital cable subscriber base, which brings higher margins, as also increase broadband users.

- It also plans to expand through buyout of network equipments, infrastructure and subscribers of other multi-system operators and local cable operators.

- Lease out fibre infrastructure to corporates.

Use of IPO proceeds

- Expansion of network for providing video, data and telephony services: Rs 73.6 crore.

- Capital expenditure on digital cable services: Rs 19.9 crore

- Capital expenditure on broadband services: Rs 10.3 crore.

- Besides general corporate purposes and issue expenses.


- Ortel's total income was Rs 121.6 crore with net loss of Rs 22.8 crore in FY12.

- For the year ended March 31, 2014, it had total income of Rs 132.16 crore with net loss of Rs 12.5 crore.

- For the year ended March 31, 2014, of its total revenues from operations, 58.89 per cent came from cable television subscription fees and 15.92 per cent from channel carriage fees.

Ortel’s valuation & NSR’s returns

The firm raised Rs 82.1 crore from New Silk Route in 2008, part of which was used to buy shares held by Actis Capital's South Asia Regional Fund. The rest, Rs 60 crore, was invested in the company through compulsorily convertible preference shares.

The last equity issue was made in July this year at Rs 140 a share. However, going by the net issue proceeds that the firm is looking to raise the issue price is expected around Rs 200 a share. This would allow PE investor NSR to double its investment value. But the six-year holding period means the PE firm would generate modest IRR of 11-12 per cent.

(Edited by Joby Puthuparampil Johnson)

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