Sea TV Network has entered the capital market on
The company provides Multi System Operator (MSO) services to various local cable TV operators in
The company is a very small local (not even regional) player, trying to grow bigger, by taking a big leap. It plans to raise funds to finance its massive expansion plans, to set-up:
1. Complete digital head end and network for implementation of Conditional Access System (CAS) worth Rs. 27.5 crore
2. 20 branch offices in
3. Own cable distribution network worth Rs. 6.56 crore
4. IPTV solution network for Rs 5.3 crore
However, these costs seem to be over-estimated. For instance, establishment cost of Rs. 77.75 lakh per branch office, measuring 750 square feet, seems very high, despite the capital intensive nature of the business.
The company's IPO has been graded 1 on a scale of 5 indicating 'below average fundamentals'. Such a poor grading is a very rare occasion, a first even in this very busy IPO season! For FY10, it reported operating income of Rs. 9.3 crore and PAT of Rs. 1.5 crore. On equity of 7 crore, its net worth, as on 31st March 2010, stood at Rs. 9.8 crore while debt was Rs. 7 crore. Post issue, promoter holding will decline to about 56-58% from the present almost 100% holding.
The company operates in a highly competitive industry, as can be seen from its rising debtors. As on
Moreover, the industry in which the company operates, also faces the challenge of technological obsolescence. Hence, it is required to undertake both operating and capital expenditure (running and fixed costs) at constant intervals.
At the upper and lower end of the price band, the company is expecting a pre-money equity valuation of Rs. 63 crore and Rs. 70 crore respectively and a PE multiple of 41.9 and 46.5 times FY10 earnings respectively, which is very aggressive for its size and scale of operations.
We give a thumps down to the issue, given the very limited geographic presence, huge competitive nature of the industry and steep pricing.