Indian Cable TV is a long haul work in progress is what we had said a couple of quarters ago and mentioned this in the last quarter also. The results of the same four sample companies in the quarter ended September 30, 2015 (Q2-2016, current quarter) in those reports once again endorse this fact. Albeit, all the four companies - the big three– Hathway Cable and Datacom Limited (Hathway), Den Networks Ltd (Den Networks), Siti Cable Network Limited (Siti Cable) and the minnow - Ortel Communication Limited (Ortel) reported a quarter on quarter (QoQ) increase in Total Income from Operations (TIO) in the current quarter, Year on year (YoY ), TIO of three of the four companies increased, while TIO of Den fell. As expected, broadband subscriber numbers and revenues continue to grow.
Operating margins (EBIDTA) of three of the four companies grew QoQ, and of two, EBIDTA grew YoY also. Overall the combined EBIDTA of the four companies grew QoQ, but declined by more than a third on a YoY basis. However, the results reported by the four companies show a faint glimmer at the end of the tunnel. How they perform over the next few quarters will tell if the Cable TV fairy tale is going to be real, or remain just a fable. In this paper, there can be no comparison of profit after tax, because, of the four, only one has posted profit after tax quite consistently-Ortel.
Subscription revenues of all the four companies increased both YoY and QoQ. All the four companies reported increase in digitisation percentages. Carriage Fees show a declining trend in general. The combined Carriage Fees of the four companies was flat YoY but declined QoQ.
The minnow wants rapid growth, and grow it should, because, as mentioned above, it is the only company among the four that has posted profit after tax. One of the avenues for growth that Ortel is looking at is LCO buyout. Ortel’s President and CEO Bibhu Prasad Rath said, “We are witnessing encouraging traction to our LCO buyout strategy in emerging markets like Andhra Pradesh and Chhattisgarh, and I am confident that this would sustain going forward. Also, going forward, we would continue with our strategy of aggressive LCO buyouts across all our markets and diligently integrate the new subscribers into Ortel’s last mile network.”
Internet subscription revenue in the current quarter increased YoY and QoQ by more than double digits. All the four companies are focusing on broadband internet services, if one were to go by the comments of their senior personnel.
“We are looking to further streamline our Broadband operations to provide stellar customer experience. Our commitment to digitization of Phase 3 areas remains and we expect this to gain further momentum in the coming quarter,” said Siti Cable Executive Director and CEO V D Wadhwa.
Ortel’s Rath said, “Healthy contribution from new RGUs (revenue generating units) along with ongoing focus on the high margin broadband business would enable us to deliver strong financial performance in the forthcoming years.”
Note: (1) 100,00,000 = 100 lakh = 10 million = 1 crore.
(2) Some figures are approximate.
(3) Other income has not been factored in for EBIDTA in the report.
(4) Siti Cable and Ortel numbers for Q3-2015 are estimates.
(5) This paper is more skewed towards the financial performance parameters in a limited way, rather than the operational and operational performance parameters of the sample companies.
Total Income from Operations grew both YoY and QoQ
A major contributor to all the four companies revenues are revenues from their Cable TV Operations. All the four also offer internet services, and revenue from these services add to their revenues. Companies such as Den and Ortel have other revenue streams also. Total Income from Operations or TIO in this paper, is the sum total of all operating income generated by the company including ‘Other Operating Revenue’ such as revenue earned through advertisement, activation and service charges, etc. TIO does not include other income such as interest, revenue earned through investments, etc. Den owns a football team and that is one of the revenue streams for its TIO, while Ortel is into infrastructure leasing that contributes to its TIO.
Please refer to Fig 1 below for TIO for six quarters starting Q1-2015 until the current quarter Q2-2016. The combined TIO of all the four companies increased 1.7 percent (increased by Rs 14.10 crore) YoY to Rs 825.32 crore as compared to Rs 811.22 crore and increased 3.3 percent (increased 26.62 crore) QoQ as compared to Rs 798.70 crore. Ortel had the highest YoY and QoQ growth in percentage terms at 24.6 percent (Rs 9.04 crore) and 12.8 percent (Rs 5.19 crore) respectively. In absolute rupee terms, Siti Cable showed the highest YoY growth with Rs 14.97 crore (6.8 percent), while Hathway had the highest QoQ growth in terms of absolute rupees at Rs 9.62 crore (3.6 percent)
EBIDTA
Overall, operating profit or EBIDTA of 3 of the four companies has been increasing since Q4-2015. It is only Den that has seen a decline to the red since Q3-2015.
YoY, the combined Earnings Before Interest, Depreciation, Tax and Amortisation (EBIDTA) of the four companies in Q2-2016 reduced by a massive 38.6 percent (reduced by Rs 50.73 crore) to Rs 80.57 crore as compared to Rs 131.30 crore, but increased 4.4 percent (increased by Rs 3.37 crore) QoQ as compared to Rs 77.19 crore.
Both Siti Cable and Ortel saw YoY and QoQ growth in EBIDTA in Q2-2016. In the case of Den, EIBIDTA declined both YoY and QoQ in the current quarter. Hathway’s EBIDTA declined YoY, but increased QoQ. Please refer to Fig 2 below.
Cable TV Operations
The major contributors to revenues of the four companies Cable TV Operations are Subscription revenues and Carriage or Placement fees. Activation fees also contribute to Cable TV Operations revenue.
It must be noted that Cable TV Operations revenue in this article and the chart below includes only these three streams. Other revenues which are not included are Advertisement revenue, sale of traded goods, lease rentals, management charges, other networking and other income, etc.
As mentioned above, all the four companies in this article reported QoQ increase in total income from their Cable TV operations in the current quarter. YoY also, three of the four companies reported growth in revenue from their Cable TV operations.
The combined total revenue from Cable TV Operations of the four companies was almost flat (reduced by less than 0.1 percent or Rs 0.7 crore) YoY at Rs 699.20 crore as compared to Rs 699.90 crore and increased 1.4 percent (increased by 11.1 crore) QoQ from Rs 688.10 crore.
Please refer to Fig 3 below that shows a snapshot of revenue from Cable TV operations. In terms of revenue from Cable TV Operations, Siti Cable overtook Hathway in Q3-2015 and is now placed second among the four with Den placed at the pole position.
The company with the highest YoY and QoQ growth in terms of absolute rupees was Siti Cable with revenue from Cable TV operations growth of Rs 11.40 crore (grew by 5.5 percent) and Rs 5.40 crore (grew by 2.5 percent) respectively. Siti Cable’s Cable TV Operations revenue in the current quarter was Rs 218.20 crore, in Q2-2015 it was Rs 206.80 crore and in the immediate trailing quarter, it was Rs 212.80 crore.
Ortel had the highest YoY and QoQ growth in Cable TV Operations revenue in percentage terms. Ortel’s Cable TV Operations revenue grew 12.3 percent (increased By Rs 3.40 crore) YoY and grew 8.8 percent (increased by Rs 2.5 crore) QoQ.
Cable TV Subscription Revenue
The combined Cable TV Subscription revenue of all the four companies in Q2-2016 increased YoY and QoQ by 0.2 percent (increased by 0.80 crore) and 2.2 percent (increased by Rs 8.10 crore) respectively. Combined Cable TV Subscription revenue in the current quarter was Rs 381.60 crore, in Q2-2015 it was Rs 380.80 crore and in the immediately trailing quarter it was Rs 373.50 crore. Siti Cable’s Cable TV Subscription revenues have been the highest among the four players in this report.
Last quarter (Q1-2016), despite the flat QoQ ARPUs and higher subscription numbers, Siti Cable’s Cable TV Subscription revenue fell QoQ because the company had initiated strict measures against erring LCO’s and had switched off signals to the extent of about 4 lakh cable TV consumers say industry sources. The action seems to have been partly successful, because the company’s QoQ Cable TV Subscription revenue increased by 7.4 percent, but did not achieve the Rs 142.40 crores of revenue levels it had in Q4-2015.
Please refer to Fig 4A below. In absolute rupee terms, Siti Cable’s Cable TV subscription revenue growth was the highest, both YoY and QoQ at Rs 3.50 crore (increased by 2.6 percent) and Rs 9.50 crore (increased by 7.4 percent) respectively. For the current quarter, Siti Cable had Cable TV Subscription revenue of Rs 138.50 crore, in Q2-2015 Siti Cable’s Cable TV Subscription revenue was Rs 135 crore and it was Rs 129 crore in the immediate trailing quarter.
In percentage growth terms, Ortel’s Cable TV Subscription revenue increased by 4 percent (increased by Rs 0.80 crore), while QoQ, it was Siti Cable that reported the highest growth in terms of percentage in the current quarter as compared to the immediate trailing quarter, as mentioned above.
Please refer to Fig 4B below. Though Cable TV Subscription revenue has been increasing in absolute rupees, its contribution to Cable TV revenues has been declining. In the case of Den and Hathway, which have more number of Cable TV subscribers, Cable TV Subscription revenue’s contribution to Cable TV revenue was around 50 percent, while in the case of Siti Cable and Ortel, Cable TV Subscription revenue contributes to around two thirds to Cable TV revenues. The author would like to remind the reader that Cable TV revenue in this report includes only Subscription, Carriage or Placement and Activation revenues only.
Carriage Fees or Placement Revenue
Combined Carriage Fees of the four companies saw a 5.9 percent (Rs 16.70 crore) decline QoQ to Rs 265.80 crore as compared to the Rs 282.50 crore and was flat YoY as compared to Rs 265.80 crore.
Three of the four companies saw a YoY growth in Carriage fees, while Den Carriage Fees declined both YoY and QoQ. Siti Cable saw the sharpest QoQ decline in Carriage Fees of 17.3 percent (reduced by Rs 12.6 crore). Hathway and Ortel saw YoY and QoQ growth in Carriage Fees. Please refer to Fig 5 below.
Carriage Fees contribution to Cable TV revenue shows an increasing trend in the case of Hathway and Ortel, while in the case of Den and Siti Cable the trend is declining. Please refer to Fig 5B below.
Broadband Subscription revenue
As mentioned above, all the four companies have reported growth in Internet Subscription revenue. The combined Internet Subscription revenue of the four companies increased 62.1 percent (increased by Rs 37.1 crore) YoY to Rs 96.80 crore in the current quarter as compared to Rs 59.70 crore and increased 12.2 percent (increased by Rs 10.50 crore) QoQ as compared to Rs 86.30 crore.
Please refer to Fig 6 below. Hathway has the highest number of internet subscribers among the four players and its Internet Subscription revenue grew the highest in terms of absolute rupees YoY by Rs 26.50 crore (increased by 58.4 percent) and by Rs 6.8 crore (increased by 10.4 percent) QoQ. In percentage terms, Den’s Internet subscription revenue grew to almost six-fold (increased to 5.85 times, by Rs 6.80 crore) and increased 57.7 percent (increased by Rs 3 crore) QoQ.
