Sea TV Network IPO Analysis

Sea TV Network, promoted by Neeraj Jain & his wife Mrs. Sonal Jain, Pankaj Jain & his wife Mrs. Chhaya Jain, and Akshay Jain, is an Agra-based company providing services of multi-system operator (MSO) to various local cable TV operators (LCO) of Agra city. It has a network of more than 150 franchisees throughout Agra city. The promoters are in this f activity for last 16 years.



Mr. Neeraj Jain started the cable TV business in 1992. In 2003, the Jain brothers started business operations under SPN Trust, a family-run trust. In 2004, Sea TV Network was incorporated, which was then purchased by the Jain brothers.

Besides acting as MSO, it also has its own local channels and program produced by own production team. These local channels focus on Agra city or Uttar Pradesh state news, events and information, which is more relevant to the city viewers. These channels are broadcasted free of charge to the TV subscribers of Sea TV. Following are the company's channels:

* Sea News is a 24-hour news channel of Agra City. The focus is on local news from Agra City and other news from the state of Uttar Pradesh. The operations of the channel are managed in house by its production team consisting of 41 employees.

* Sea Jinvani is dedicated to the followers of Jain religion. All type of religious programs like pravachan, satsang, short stories on the various Jain tirth and songs are telecast through this channel. It plans to launch this as a satellite channel as a part of the second phase of its expansion. It will be an international channel based on Jainism and at the same time give due weight to all other religious events and practices.

* Sea TV telecasts local cultural programs, sport meets, annual functions, and various other programs such as kavi sammelan.

* Sea Bhakti is a 24-hour religious channel.

Besides these niche channels, it also plays old Hindi movies and music on its local channels. It has made three applications to the Ministry of Information & Broadcasting for up-linking news and current affairs channels Real News, Ocean TV and Your TV in August 2010.

Net sales increased by 19% to Rs 9.37 crore for FY 2010 due to increase in income from subscription and advertisement revenues. Operating profit margin (OPM) increased by 940 basis points to 36.4%, resulting in 47% increase in net profit to Rs 1.51 crore.

The company proposes to fund its expansion plan of Rs 59.65 crore with an initial public offering (IPO) of Rs 50.2 crore at a price band of Rs 90-100 per share of face value Rs 10 each. Allahabad Bank has sanctioned a term loan of Rs 8.95 crore, while the remaining Rs 0.5 crore will be contributed through internal accrual. Part of the net proceeds is proposed to be utilized for setting up a complete digital head-end and network for implementation of conditional access system (CAS) to convert from the present analog system to digital system at a cost of Rs 27.5 crore, setting up a network for complete IPTV solution at a cost of Rs 5.3 crore, setting up own cable distribution (underground optical fiber) network capable of digital transmission throughout Agra City and adjoining areas at a cost of Rs 6.6 crore and setting up own 20 branch-offices in the city including adjoining areas with required infrastructure for receiving digital signals and re-transmitting them without much value addition through co-axial cables to individual customers/subscribers at a cost of Rs 15.55 crore.

Strengths

* Has more than 150 LCO franchisees.

* Its own brand channels focusing on local news, events and information.

* Market share is about 60% - 65% in Agra.

Weaknesses

* Has limited geographical presence, i.e., only in Agra city.

* The sector is highly fragmented and requires constant technological up-gradation. Faces competition from the other two MSOs and also from providers of television services through different transmission platforms such as DTH satellite television and IPTV.

* Presently using analog technology for distributing its signals to its LCOs. This requires a high degree of maintenance to maintain the quality of the output. Also, viewers do not have the freedom to view the channels of their choice and being bound by the number of channels they can view depending on the limitations imposed by their television set. In analog system, exact number of subscribers cannot be ascertained. Thus under-declaration of number of subscribers by LCOs results in heavy loss of revenue.

* IPTV is one step ahead of the existing technologies. Still it faces challenges like poor last mile broadband connectivity, low broadband penetration among masses, unclear and outdated regulatory norms specified for cable TV and regionalization of content. Further, the telecom and cable sectors are involved in a slugfest over who can provide IPTV services.

* Over the years, the cable TV business has witnessed many new developments due to technological advancements. The government has taken steps towards promoting digitalization of TV signals through the regulatory body, Trai. If Trai issues regulations favoring a particular type of platform, e.g. HITS or DTH, it would have adverse impact on the existing MSOs.

Valuation
At the lower price band of Rs 90 per equity share of Rs 10 face value, the P/E works out to 75.2 times the EPS of Rs 1.2 (on post-IPO equity) for FY 2010. At the upper band of Rs 100, P/E works out to 80 times the EPS of Rs 1.3 for FY 2010. The asking price is highly unrealistic for such a small player.