Crisil rates You Broadband?s proposed IPO

MUMBAI: Ratings agencies look at cable TV networks with a conservative approach due to the nature of the sector. In its latest research report, Crisil Equities has assigned a grade of 2/5 to You Broadband & Cable India?s proposed Rs 3.6 billion initial the proposed initial public offer (IPO), implying that its fundamentals are below average relative to other listed equity securities in India.

The IPO grade reflects the company?s presence in two growing sectors ? broadband and cable television distribution (You Broadband is present in the cable television distribution business through its associate company ? Digital Outsourcing, where it has 36.24 per cent stake). The company has been able to sustain its market share of internet subscribers in the past four years.
Crisil Research expects the number of households with internet access to log a healthy growth rate of 22 per cent over FY10E-FY13, which would support YOU Broadband?s growth. The company has also grown in the cable television business through the acquisition of various multi-service operators (MSOs).

The company stands to benefit from the synergies of bundling broadband and television to its subscribers, resulting in higher revenues and economies of scale, Crisil said.

The grading is tempered by the high degree of competition in the broadband industry which has led to a fall in average revenue per subscriber (ARPU), resulting in low margins for players. You Broadband has a relatively weaker competitive positioning in the broadband industry which is dominated by the telecom behemoths that have a market share of 80-85 per cent. The future growth of You Broadband, to a large extent, depends on the company?s ability to successfully acquire local cable operators (LCOs) and to cross-sell its internet offering.  
However, the strategy to acquire and integrate LCOs faces execution challenges. The grading is also constrained by the high degree of competition in cable television from direct-to-home (DTH) operators, many of whom have strong parentage and financial muscle. The company is also highly dependent on the IPO proceeds to fund its growth plans and any delay in fund raising would adversely affect these plans, Crisil said.

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