The digital cable television services business is improving at the moment, says Siti Cable's CEO VD Wadhwa. The company is currently in the investment phase due to digitization, he says, and requires around Rs 1,200 crore. The company is looking to raise Rs 300-400 crore through debt or equity.
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The company says it has recovered half the value of Set-top boxes from customers. However, it continues to have high debt on its books. It has debt of over Rs 700 crore and net of activation charges roughly Rs 600 crore will be the total funds requirement. Despite this, Wadhwa says the company continues to see a lot of foreign investor interest. He said he will consider selling stake when valuations improve. He expects the company's financials to improve in FY16.
Meanwhile, Siti Cable, along with DEN Networks, InCable and Hathway Cable and Datacom, got a breather from the Delhi High Court on payment of entertainment tax. Earlier this week, the Delhi High Court passed an interim order restraining the state government's entertainment tax authorities from taking any coercive action against them for not paying entertainment tax.
Below is the verbatim transcript of VD Wadhwa's interview with Sonia Shenoy and Latha Venkatesh on CNBC-TV18.
Q: Before I go to your financials, this stock has seen a significant amount of movement, is there any important positive newsflow that we have been missing?
A: No, I think the results are - because quarter-on-quarter (Q-o-Q) for last three quarters, the results have been improving and currently in the cable industry Siti Cable is the cheapest stock available. So I think that is one reason why there is a lot of interest among the buyers for the stock.
Q: You said consolidated financials for Q2 indicated that your loss has expanded to Rs 22 crore, will things look better in Q3 and Q4?
A: As you know we are in a digitization phase so when you are expanding the base and you are digitizing the entire country obviously we are in an investment phase, so your depreciation is going up but your EBITDA levels are growing significantly at the same time. I cannot give you the exact numbers right now, our board meeting is in the next couple of weeks but our profitability has improved significantly and our losses on the last year will be reduced considerably by the time we close the year.
Q: When do you think you may turn the corner, when the investment phase will be done and the returns will be more than what you will have to plough in, would it be FY15 first half?
A: No, it will be FY16 largely because if you know the phase III and IV of digitization is in September and December 2014, so next 12 months are going to be investment phase itself and I think you will not see the full benefit of digitisation till next fiscal year itself. FY16 is the one full year when you will see - once we are digitized more than 10 million subscribers across the country and then from the first month itself you are seeing monetization of that business. In the next year basically we are going and expanding, so next year you will see that the upside in the business results but major benefit will be seen in FY16.
Q: What is the exact expenditure that you had to make for phase III and your expansion and where have these funds come from?
A: Total funds which are required is roughly to the tune of about Rs 1,200 crore on the gross level - as you know we recovered roughly half of the set top boxes cost from the subscribers. So initially roughly Rs 1,200 crore will be required and net of activation charges roughly Rs 600 crore will be the total funds requirement. So initially before the end of the current fiscal year, the promoters funding will be coming in. The entire Rs 240 crore is going to come in before the end of March this year and that is what is going to take us through the next couple of months and then closer to the September date, we will keep on recovering activation charges. So net of promoters funding, we still have the funds requirement of close to about Rs 300-400 crore, which we are in the process of lining up with the combination of debt or equity.
Q: Exactly how much might your capital increase you think?
A: Our debt is on the higher side, we are planning because with this promoter funding, part of this will go towards the payment of debt initially and later on we are restructuring and then overall equity base will go up. So overall debt equity ratio by the time we close FY15, we are planning to bring down the equity base to about 2.5 to 1 debt equity.
Q: There was some talk that you are looking to sell some of your stake to foreign players as well, anything lined up in this calendar year itself?
A: In fact there have been a lot of foreign funds and foreign buyers have shown interest including some of the strategic investors who wanted to pick up stake in our company. We are in active dialogue with them but this is not the right time because we believe that right now we are grossly undervalued from the share point of view and so far our entire expansion phase I and II has been funded by the promoters and even with this Rs 240 crore, a significant part of phase III also will be funded with promoter equity. So we believe this is not the appropriate time maybe closer to the middle of next fiscal year, if we get good valuation then only we should be able to do that. We are open about it.
Q: How much stake are you looking to sell ballpark?
A: We haven’t decided anything. As I told you, our total net fund requirement will be about Rs 600 crore. So we will see at that stage what the total fund requirement will be, accordingly we will take a call.
Q: You said your debt equity will become 2.5: 1, what is it now?
A: Right now our debt is about more than Rs 700 crore. We are in a negative networth because there is no debt equity right now.
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