Low earnings and competition from pan India players will make it difficult for Sea TV

Issue

Price: Rs90-Rs 100 per share with a face value of Rs 10 per equity share.
Number of shares: 55.77 lakh.
Issue size: Rs50.20 crore.
Issue duration:  27 September-29 September 2010.
Listing: BSE.
Book running manager: Chartered Capital and Investment Ltd.

Valuations

The issue is priced at nine times at the lower end of the price band and ten times at the upper band. Sea TV Network had an EPS of Rs2.15 in FY10. This compares with its competitor Den Networks Ltd which had an EPS of Rs1.60. The P/E ratio for Sea TV was 41.86 (in the lower band) and 46.51 (in the upper band) against 127.90 for Den Networks which was the highest in the industry. The lowest P/E in the industry in FY10 was 1.20 and the average was 25.10.  Another cable TV service provider, Hathway Cable & Datacom Ltd, posted a net loss of Rs13.93 crore in the year ended 31 March 2010.

Business model

Sea TV Network is a multi-system operator (MSO) based in Uttar Pradesh. It aims to raised Rs 50.20 crore from the capital market through a 100% book-building issue. Sea TV airs programmes produced by its own team on its channels. These local channels mainly focus on Agra city/UP,  state news/events and information and they broadcast free of charge to its subscribers. 

Sea TV is engaged in providing MSO services to local cable TV operators in Agra. The company is promoted by Neeraj Jain, Akshay Kumar Jain, Pankaj Jain, Sonal Jain and Chhaya Jain.  It plans to install optical fibre network with optical cable having 48 lines, of which 33 lines would be reserve for its own use against the immediate requirement of 15 lines. It plans to give the other 15 lines on rent to third parties which would translate into an additional source of income.

As per industry estimates, there are 120 million TV homes in the country. Of this 71 million are served by cable TV network, about 6 million by DTH and the rest by terrestrial TV. Apart from some ground-based channels, there are about 225 satellite channels registered under up-linking/downloading guidelines of the government of India.

Financial Snapshot

•  Total Income: Rs9.46 crore (in FY10)
   
•  Operating Profit: Rs3.41 crore (in FY10)

Objects of the issue

1) To set up a complete digital head end and network for implementation of conditional access system (CAS) at a cost of Rs27.51 crore.

2) To set up network for complete IPTV solution for Rs5.28 crore.

3) Setting up a cable distribution (underground optical fibre) network capable of digital transmission across Agra City and adjoining areas at a cost of Rs6.56 crore.

4) Setting up 20 branch offices in Agra at Rs15.55 crore, and

5) Meeting the issue expenses of Rs4.73 crore.

Analysts take

The Sea TV Network IPO has been graded as 'IPO Grade 1' by rating agency ICRA, indicating concerns over poor fundamentals. This grading reflects the concerns over risks arising out of the small scale of operations, the company's significant expansion plans, risk of geographic concentration with a presence only in Agra (Uttar Pradesh) and competition from other players in the city, as well as from companies like Bharti Airtel, Reliance Big TV, Dish TV etc which provide direct-to-home (DTH) cable services. 

Positives

Expected revenue streams

•  Subscription revenues from direct subscribers as well as franchisees. 
   
•  Steady income from set-top box rent and value-added services through the IPTV set-up.
   
• Carriage fees from broadcasting channels, and rentals from its optical fibre network.
   
• Advertising from its own channels (like Sea News) should contribute a steady share of the income.

Concerns

Permissions and competition

•  Poor IPO grading.
   
• Yet to obtain certain approvals, licenses, registrations and permits.
   
• Threat of technological obsolescence.
   
• Yet to receive nod for launching three channels like 'Real News', 'Ocean TV' and 'Your TV' from the Ministry of Information & Broadcasting.
   
•  It is the third cable Multi System Operator in Agra.
   
•  Faces competition from big players like Tata Sky, Dish TV and BIG TV that are eyeing an all-India reach through the DTH platform.
   
• Company does not own the registered trademark "Sea TV".

Concluding notes

Sea TV Networks is a small player with low earnings. In the face of competition from other small players and some really big operators, the company requires funds to expand its operations. Sea TV could find it quite difficult to achieve its ambitious plans and execution will be the critical factor.