Cable TV

'Buyout valuations will now be decided in terms of ARPU rather than carriage growth' : IMCL MD and CEO Ravi Mansukhani

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IndusInd Media and Communications Ltd (IMCL), the media subsidiary company of Hinduja Ventures Ltd, plans to raise $100 million, a major chunk of which will be used to fund acquisitions.

Operating its cable TV business under the InCablenet brand, IMCL had earlier planned an initial public offering (IPO) but changed its stance as the newly listed cable TV entities, Den Networks and Hathway Cable & Datacom, dropped in market value.

Even on the acquisition front, IMCL has changed gears. Earlier, the focus was to buy small-sized cable TV networks and expand geographies. Now it targets big-ticket acquisitions, expecting the sector to consolidate as the government chalks out a schedule for digitisation across the country.

Slow on the broadband path, IMCL is experimenting on new technologies where it will not have to entirely overhaul its network to load on broadband capability.

In an interview with Indiantelevision.com’s Sibabrata Das, IMCL managing director and chief executive officer Ravi Mansukhani talks about how the acquisition game is going to move from carriage calculations to valuations based on ARPU (average revenue per user) growth as the cable TV sector transitions into the digital era.

Excerpts:

Why is IMCL taking so much time in readying its IPO?

We are in the market to raise $100 million ahead of the IPO and have mandated Deutsche Bank for this. We want to first build a solid valuation base. We believe the value of the top-rung MSOs will get a significant boost once the government fixes up a schedule for digitisation. We want to also expand on our size before we go for a public float.

We have separately raised Rs 1 billion of debt from General Electric. So funding is being taken care of. We are getting ready to move into top gear.

Have you finalised on how you are going to raise this amount?

We are weighing various options. We are looking at mezzanine structures. The final structuring will depend on what fund-raising instrument we select.

Are we going to expect acquisitions or a drive to greater digitisation?

We plan to use three-fourth of the amount raised for acquiring cable TV networks. We are looking at small and big-ticket acquisitions. We believe there is going to be consolidation in the industry. For digitisation, we have a separate funding plan to meet the capex requirements.

Why has there been a change in stance as the earlier focus was to buy small-sized cable TV networks and expand geographies?

We see an opportunity out there as the other leading MSOs like Hathway Cable & Datacom and Den Networks are not on a buying spree. The valuations have dropped and we are ready to make big-ticket acquisitions ahead of the government‘s digitisation schedule. The acquisition focus now will be not on expanding into new geographies but on consolidating and growing in existing operational cities.

Will the acquisition game change even as the government lays out a roadmap for digitisation across the country?

The game will definitely change. A few years back, when the pace was set by new entrants such as Den and Digicable, acquisitions were based on carriage calculations and TRP cities were favoured. Now, as digitisation creeps in, buyout valuations will be decided in terms of ARPU growth. So we have decided to consolidate and expand in areas where we already exist like Maharashtra. There is no point in spreading lean.

"We are in the market to raise $100 mn ahead of the IPO. We want to first build a solid valuation base. We believe the value of the top-rung MSOs will get a significant boost once the govt fixes up a schedule for digitisation. We want to also expand on our size before we go for a public float"

Do you see MSOs fighting amongst each other once the digitisation programme is announced?

MSOs would rather consolidate and expand where they are strong; their focus would be on digitising their existing network. MSOs can‘t create a fight today without being attacked; too much is at stake.

How will MSOs counter the DTH invasion?

India will remain primarily a cable country. Yes, in a diversified and fragmented market, DTH will have space. But being the incumbent player, cable TV has a distinct advantage. Besides, it is cheaper priced, bandwidth is no issue and it can be interactive. MSOs will also start launching server-based local channels as in the digital era, space will open up for more channels. There will be need for local news and events. DTH can‘t offer these channels.

How much of IMCL‘s network is digitised?

We have over half a million digital set-top boxes (STBs) installed. Out of the 28 cities that we operate in, we provide digital services in 17 cities via 10 digital head-ends.

If the government‘s digitisation plan is on stream, we will deploy close to two million additional boxes in Phase 1. We are going to fund our digitisation through lease and vendor financing.

Why is IMCL‘s broadband story yet to emerge?

Our focus has not been on broadband in the past because the franchisee operators have been providing it. Though we provide broadband in nine cities, our revenues from this segment stood at just Rs 50-60 million in FY‘11.

We plan to have a strong broadband story once the digital path is properly spelt out. We are currently experimenting on new technologies where we will not have to entirely overhaul our network to load on broadband capability.

We won‘t have a problem building up broadband revenues once we have pushed the digital STBs in. The script will change after the government announces the sunset date for the digitally notified areas. It is companies like You Telecom who will need to grow their cable TV presence in order to provide broadband.

Hathway has announced it would launch its HD service in June. When are you getting into this segment?

Our first priority is to offer digital service. We will then graduate to HD. The market is still not ready for it. HD boxes are on the anvil and we will introduce them into the market in the next few months.

IMCL‘s total income jumped 23 per cent to Rs 4.03 billion in FY‘11. What growth do you estimate in FY‘12 and what is the outlook on carriage income?

We expect revenue to grow between 20-25 per cent. This will be higher if we raise capital fast and make big-ticket acquisitions.

We saw 18-20 per cent growth in carriage income in FY‘11. We expect strong growth from this stream as more and more channels get launched in the fiscal.

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