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Ortel Communications Ltd.

BSE: 539015 Sector: Media
NSE: ORTEL ISIN Code: INE849L01019
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VOLUME 3106
52-Week high 160.00
52-Week low 27.25
P/E
Mkt Cap.(Rs cr) 92
Buy Price 0.00
Buy Qty 0.00
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OPEN 30.60
CLOSE 30.00
VOLUME 3106
52-Week high 160.00
52-Week low 27.25
P/E
Mkt Cap.(Rs cr) 92
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Ortel Communications Ltd. (ORTEL) - Director Report

Company director report

To the esteemed Members

Your Directors have pleasure in presenting their 22nd Annual Report on the business andoperations along with the Audited Accounts of your Company for the Financial Year endedMarch 31 2017.

Financial Highlights

A summary of your Company's financial performance is given below:

Rs.In Crores.
Particulars 2016-17 2015-16
Total Revenue 207.21 196.29
Operating Expenses 152.12 126.00
Earnings Before Interest Depreciation Tax & Amortization (EBIDTA) 55.09 70.29
Interest and Financial Charges 25.21 23.56
Earnings before Depreciation Tax & Amortization (EBDTA) 29.88 46.73
Depreciation Amortization & other exceptional expenses. 28.45 31.74
Earning before Tax (EBT) 1.43 14.99
Tax - 3.06
Earning after tax (EAT) 1.43 11.93

State of Company's affairs and Operational Results

The highlights of the Company's performance are as under:

• Total revenue was Rs. 207.21 Cr compared to the previous year's total revenue ofRs. 196.29 Cr.

• EBITDA stood at Rs. 55.09 Cr compared to Rs. 70.29 Cr of corresponding previousfinancial year.

• Earning before Tax (EBT) for the period is Rs. 1.43 Cr as compared to Rs. 14.99Cr of last fiscal.

• Earning after Tax (EAT) stood at Rs. 1.43 Cr as compared to Rs. 11.93 Cr of lastfiscal.

• EPS stood at Rs. 0.47 as compared to Rs. 3.93 of last financial year.

Business/Operational Review:

The Year 2016-17 has been a challenging year in terms of performance. The financialperformance of the Company has been impacted due to factors such as; competition from newplayers challenges in digital implementation in smaller markets. Moreover this yearyour Company focused in consolidating the newly acquired markets in the recent past.

Notwithstanding this your company has demonstrated healthy growth in revenues fromboth cable TV and broadband business on a year-on-year basis (Y-o-Y) during the year underreview. Members will be happy to know that EBITDA for non-Odisha markets have turnedpositive during the year under review. In spite of various factors affecting theperformance during the period under review your company has reported a 5.56% growth intotal revenues driven by healthy growth of 27% in cable TV and 11.35% in broadbandbusiness.

Segment Revenue Contribution:

The contribution of each income stream to the total revenue is as below:-

Cable TV services 63 %
Data Services 17 %
Infra-structure leasing 03 %
Carriage fees 14 %
Others 03 %.

Segment wise Analysis:

i) Cable TV Service:

During the year under review your company continued to be a dominant player in theCable TV market in Odisha and has continued to consolidate its position in the states ofChhattisgarh Andhra Pradesh and Telangana.

As on 31.03.2017 the total Cable TV customer base has been increased to 750471(Previous Year: 628710) which is a 19% growth over previous year.

With internationally used "Last Mile" model implemented by your Company anddigitization of entire CATV subscribers the Company is hopeful of continuing growth inthe customer base in the future.

ii) Broadband Services Operation:

The total Broadband subscriber base as on 31.03.2017 is 73087 (Previous Year: 72482).With competition across the Industry the broadband growth was static during the year.However your Company is hopeful increasing the growth trend of customer base in thecoming years with higher data speed and better technology including service.

Your Company has successfully implemented DOCSIS 3.0 high speed broadband serviceduring the year under review and is currently offering data service upto a speed of 100Mbps. To offer better experience broadband speed to the customers your Company haswithdrawn all the schemes where the download speed was below 1 Mbps. The Company has alsoidentified new markets as a part of expanding the Data operation and has planned to expandfurther in the coming financial year. Your company is using HFC network architecturewhich can easily be upgraded to FTTH topology in future. Your company is currentlyproviding FTTH for pure data usage. With the implementation of new technology high speeddata service and aggressive marketing strategy the Company is well placed to cater to thegrowing demand.

Considering both cable TV and broadband together your company has achieved total RGUbase of 823558 by the end of the current year (previous year 701192) a growth of 17 %.It is important to note here that in line with your company's philosophy of operating on"Last Mile" Model 90 % company's RGUs are on its own ‘last mile' network.

iii) Infrastructure leasing:

Over last few years your Company is pursuing infrastructure segment as another majorrevenue generating stream by leasing out its own infrastructure to corporate clients fortheir communication requirement and has leased out to various corporates a total of 1878kms (Previous Year: 1569 kms) as on 31 March 2017 a growth of 20 % over the previousyear.

Dividend

Though the Company has reported profits for the year no dividend is being recommendeddue to accumulated losses from the past Financial Years.

Transfer to Reserves

As no dividend is proposed so no amount is recommended to be transferred to GeneralReserve.

Share Capital

During the year under review there were no change in the Share Capital of yourCompany.

Holding Subsidiaries & Associates

Your Company does not have any holding subsidiary or associate during the period underreview.

Change in the Nature of Business if any

During the year under review there were no changes in the nature of the business ofthe Company.

Revision of financial statement:

There was no revision of the financial statements for the year under review.

Extract of Annual Return

The extract of the Annual Return of your Company as on March 31 2017 as provided undersub-section (3) of Section 92 in the Form MGT 9 is enclosed as ‘Annexure-1'formingpart of this Report.

Statutory Auditors

M/s. Haribhakti and Co. LLP Chartered Accountants Kolkata were appointed as StatutoryAuditors of your Company for a period of five years with effect from 19thAnnual General Meeting till the conclusion of 24th Annual General Meeting ofthe Company subject to ratification of their appointment by the shareholders in the AnnualGeneral meeting of the Company every year if eligible.

Now Board has recommended members for ratification of said appointment of M/s.Haribhakti and Co. LLP Chartered Accountants Kolkata being eligible as the StatutoryAuditors of the Company at the ensuing Annual General Meeting.

Observations of the Auditors

Observations of the Auditors on the Annual Accounts of the Company forms part of"Auditors' Report". The observations made in their report when read togetherwith the relevant notes to the accounts are self-explanatory.

Secretarial Auditor

Pursuant to the provisions of Section 179 and 204 of the Companies Act 2013 read withthe Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014 M/ s.Kumar Suresh & Associates Gurugram a firm of Practicing Company Secretaries wasappointed as Secretarial Auditor to conduct the Secretarial Audit of the Company for theFinancial Year 2016-17.

CS. Suresh Yadav Secretarial Auditor has given the Secretarial Audit Report in FormNo. MR.-3 and the same has been annexed to the Board's Report and marked as ‘Annexure- 2'. There is no qualification in the Report of Secretarial Auditor which isself-explanatory.

Your Board has also re-appointed M/s. Kumar Suresh & Associates Gurugram asSecretarial Auditor for FY 2017-18 who is eligible for such reappointment to conductSecretarial Audit of your Company.

Cost Auditor

Terms of M/s. NIRAN & CO. Cost Accountants Bhubaneswar Odisha who werereappointed as Cost Auditor of the Company for Financial Year 2016-17 expired on 31 March2017.

Your Directors have approved their reappointment for FY. 2017-18 and their remunerationshall be ratified by the members in the ensuing Annual General meeting.

Internal Auditor

Terms of M/s. SCM & Associates Chartered Accountants Bhubaneswar Odisha who werereappointed as Internal Auditor of the Company for Financial Year 2016-17 expired on 31March 2017.

Your Directors have approved their reappointment for financial year 2017-18.

Directors' Responsibility Statement

Yours Directors hereby certify:-

a) that in the preparation of the annual accounts the applicable Accounting Standardshad been followed along with proper explanation relating to material departures.

b) that the directors have selected such accounting policies and applied themconsistently and made judgment and estimates that they are reasonable and prudent so as togive a true and fair view of the state of affairs of the company at the end of thefinancial year 2016-17 and of the profit or loss of the company for that period.

c) that the Directors have taken proper and sufficient care for the maintenance ofadequate accounting records in accordance with the provisions of the Companies Act forsafeguarding the assets of the company and preventing and detecting fraud and otherirregularities.

d) that the directors have prepared the annual accounts on a going concern basis.

e) the directors have laid down internal financial controls to be followed by thecompany and that such internal financial controls are adequate and were operatingeffectively.

f) the directors have devised proper systems to ensure compliance with the provisionsof all applicable laws and that such systems were adequate and operating effectively

Utilization of IPO Proceeds:

The IPO proceeds (net of issue expenses) pursuant to the Initial Public Offering (IPO)completed in FY 2014-15 has been fully utilized as per the object set out in the offerdocument. There was no deviation in the utilization of issue proceeds during the yearunder review.

Particulars of loans guarantees or investments under section 186

Your Company has not given any loans or guarantee or made any investments under Section186 of the Companies Act 2013.

Particulars of loans/ advances or investments outstanding during the financial year

Disclosure on particulars relating to loans advances and investments outstandingduring the financial year is disclosed in note no 1314 &19 under "Notes toFinancial Statement" forming part of the financial statement of the Company.

Particulars of contracts or arrangements with related parties

All contracts/arrangements/transactions entered by the Company during the FinancialYear with related parties were in the ordinary course of business and on an arm's lengthbasis and were reviewed and approved by the Audit Committee and Board. During the yearthe Company has not entered into any contract/arrangement/transaction with related partieswhich could be considered material in accordance with the Company's Policy on Materialityof Related Party Transactions. All the transactions made on arm's length basis are beingreported in Form No. AOC - 2 in terms of Section 134 of the Companies Act 2013 read withRule 8 of the Companies (Accounts) Rules 2014 is annexed as ‘Annexure-3'.

The policy on dealing with Related Party Transactions can be viewed athttp://www.ortelcom.com

Performance Evaluation of Board Committees and Individual Directors including ManagingDirector

In compliance with the Companies Act 2013 and Regulation 17 of the ListingRegulations the performance evaluation of the Board its Committees and individualDirectors including Managing Director were carried out during the year under review.

Independent Directors in their separate meeting evaluated performance of Board as awhole non-independent Director and Chairperson of the Board.

Further based on the appraisal report of the individual Directors both for self andother Directors Board carried out evaluation of Independent Directors Managing Directorand all its committees.

The evaluation framework for assessing the performance of Directors comprises of thefollowing parameters:-

i. Attendance of Board Meetings and Board Committee Meetings

ii. Contribution at meetings

iii. Guidance/support to Management

iv. Relationship with Board and Committees

v. Degree of participation etc.

Risk Management:

Risk management has always been an integral part of the corporate strategy whichcomplements the organizational capabilities with business opportunities robust planningand execution. The Company through a process of management mechanism covering the riskmapping and trend analysis risk exposure potential impact and risk mitigation practicemanages the potential risks. A detailed regular exercise is being carried out to identifyevaluate manage and monitor both business and non-business risks. A Risk ManagementCommittee of the Board periodically reviews the risks and suggests steps to be taken tocontrol and mitigate the same.

Deposits

Your Company has not accepted any deposit from public during the year under review.

Declaration given by Independent directors

All the Independent Directors have given declaration of their independence in terms ofSection 149(7) of the Companies Act 2013 and Regulation 16(1)(b) of the SEBI (ListingObligations And Disclosure Requirements) Regulations 2015.

Number of meetings of Board of Directors

For the Financial Year 2016-17 the Company held four (04) meetings of the Board ofDirectors details of which form part of the Corporate Governance Report.

Material changes and commitments if any.

There were no significant material changes and commitments affecting the financialposition of the Company which has occurred between the end of the Financial Year of theCompany to which the Financial Statement relate and the date of its report

Employee Stock Option Scheme:

During the year under review the Company has neither offered/granted nor allotted anynew Stock Option either under ‘Ortel Employee Stock Option Scheme 2015' ("ESOS2015") or under old Scheme ESOS 2010. As per ESOS 2015 a Ortel Employee WelfareTrust (herein after referred as "Trust") was executed by the Company to acquireshares of the Company from Secondary market for offering them to the eligible employees infuture as per the direction of Nomination & Remuneration Committee of the Board.During the year under review the Trust has acquired 29375 shares of the Company. Thedetails of disclosure form part of the Corporate Governance.

Directors and Key Managerial Personnel.

Mr. Baijayant Panda Non-Executive Director of the Company is retiring at the ensuingAnnual General Meeting. Your Directors have recommended his reappointment in the next AGM.The detailed resume of Mr. Baijayant Panda who has offered for re-appointment is providedin the explanatory statement annexed to the notice of the Annual General Meeting.

There are no other changes in the constitutions of the Board of Directors and keymanagerial personnel.

Significant and material orders passed by the regulators or courts or tribunalsimpacting the going concern status and company's operations in future;

No such significant and material order have been passed by any Regulator/ Court/Tribunal against the Company which will impact the Going Concern status and company'soperation in future. In those matters which are pending before various regulators orcourts or tribunals your company has strong reasons to succeed in all the said disputedmatters

Particulars of Employees

Information as per section 197 and Rule 5(1) & 5(2) of the Companies (Appointment& Remuneration of Managerial Personnel) Rule 2014 is provided as ‘Annexure-4'.

Corporate Governance:

Pursuant to SEBI Listing Regulations a report on the Corporate Governance ManagementDiscussion and Analysis Certificate regarding Compliance of conditions of CorporateGovernance and Certificate by CEO & CFO have been made part of the Annual Report asAnnexures.

Conservation of Energy technology foreign exchange earnings and outgo

The Company is a Multi System Operator (MSO) and is carrying on business of interalia providing Cable TV and Broadband service along with other value added services.Since this does not involve any manufacturing activity most of the Information requiredto be provided under Section 134(3)(m) of the Companies Act 2013 read with the Companies(Accounts) Rules 2014 are nil/not applicable.

Further your Company being a service provider requires minimal energy consumptionand Company takes all possible measures to ensure optimal use of energy avoid wastagesand conserve energy as far as possible. Following are the energy conservation measuresbeing taken by Company over a period of time to ensure minimum energy consumption andtechnology absorption.

Conservation of Energy:

1. The steps taken for conservation of energy. • Conservation of RF Optical Electrical and fuel energy is being accomplished by your company in economically responsible and beneficial ways by using power efficient equipment broadband HFC network provisioning system ergonomics in the cable layout cleanest and state of art technologies.
2. The steps taken by the company for utilizing alternate sources of energy.
3. The capital investment on energy conservation equipment. • Increasing more deeper fiber by using Broadband HFC network in star structure has resulted less power consumption.
• Applying the strongest feasible energy efficiency standards to network upto electronics RF products and signal quality.
Technology Absorption:
1. The efforts made towards technology absorption. • Your company is one of the MSOs in India which has potential to provide Triple Play services over HFC network. It has chosen best economical and state of art technologies.
2. The benefits derived like product improvement cost reduction product development or import substitution. • Your company uses Cable Modem technology for high speed Internet access. The Company is also using Metro Ethernet ("MEN") and Ethernet over Cable
3. In case of imported technology (imported during the last three years reckoned from the beginning of the financial year):- (EoC) technology which engages different network topology for providing high speed data service at a lower cost.
a. the details of technology imported; • Your company has also adopted digital video technology to deliver qualitative video and audio using MPEG-2 and MPEG-4 Technology. Your company has also started HD TV services and offers HD channels to its subscribers in select markets.
b. the year of import;
c. whether the technology been fully absorbed; • Your Company has also introduced latest broadband technologies such as DOCSIS 3.0 to cater to subscribers who have increased demand of Video led Internet Consumption.
Seamless HD video content viewing as well as increased download speeds are the main benefits of DOCSIS 3.0 technology.
d. if not fully absorbed areas where absorption has not taken place and the reasons thereof; DOCSIS 3.0 allows for a much higher throughput compared to the earlier versions by using multi-channel bonding simultaneously for download/upload. This technology has been widely used in Europe and USA by leading ISPs.
e. The expenditure incurred on Research and Development • Your company is also using HFC architecture which can easily be converted or upgraded to FTTH. Your company is currently providing FTTH for pure data usage to select customers.

Foreign Exchange Earnings & Outgo

Your Company does not have any foreign exchange earnings. Details of foreign exchangeoutgo are disclosed in Note Nos. 33 to 35 of "Notes on Accounts" forming part ofthe notes to financial statement of the Company.

Certifications

Your company has been certified and recertified by Bureau Veritas Certification (India)Pvt. Ltd. (BVQI) to confirm with ISO 9001:2008 standardization for both cable and dataservices for Bhubaneswar Cuttack Rourkela and Sambalpur operational sites.

Your company has also received certification from BECIL (TRAI appointed CertifyingAgency) for its digital Encryption and Subscriber Management System of digital services.

Your company is the first of its kind in India to receive such certification.

Corporate Social Responsibility:

Being a responsible Corporate Citizen your company is committed to contribute towardssocial well-being of the communities through various corporate social responsibility("CSR") initiatives. Company has been undertaking various social works as partof its CSR activities over a period of time. It invests in Social programs for the underprivileged

girl child contributes towards their overall learning and personal growth opensemployment avenues and also it attempts to bring about significant and sustainableimprovements in their standard of living. Your company's flagship CSR activity known as'Ortel Dayitwa' provides financial support to girl children for college education. OrtelDayitwa encourages girls to pursue education after secondary education with an objectiveto reduce dropouts after secondary education and also conducts various education awarenessprograms from time to time.

After mandatory applicability of provisions of Section 135 of the Companies Act 2013to the Company in FY. 2015-16 the Company has constituted a Corporate SocialResponsibility Committee of the Board ("CSR Committee").

The Board of Directors of the Company has approved CSR Policy based on therecommendation of the CSR Committee. The CSR Policy of the Company is available on theCompany's web-site and can be accessed in the link www.ortelcom.com

As per the criteria specified under Section 135 of the Companies Act 2013("Act") the Company was mandatorily required to contribute and spent at leastRs. 5.57 lac constituting 2% of average net profit towards CSR activities during FY 2017.However Your Company has contributed and spent Rs.614000/- towards education of poorand under privileged girl child Computer and Internet education and related programs andtowards peripheral and environmental development. As required under Section 134 of the Actand Companies (Corporate Social Responsibility Policy) Rules 2014 statement containingthe details of CSR expenditure is disclosed as 'Annexure -5'.

The Company continues and shall continue to contribute towards social well being infuture.

Internal Financial Control

The Company has a well laid down proper and adequate internal control system whichensures that all assets are safeguarded and protected and that the transactions areauthorized recorded and reported correctly. The Internal Financial Controls withreference to financial statements as designed and implemented by the Company are adequate.During the year under review no material or serious observation has been received fromthe Internal Auditors of the Company for inefficiency or inadequacy of such controls.

The Board of Directors has appointed M/s. SCM & Associates Chartered Accountantsas the Internal Auditor of the Company. The Internal Auditors independently evaluate theadequacy of internal controls and concurrently audit the majority of the transactions invalue terms. Independence of the audit and compliance is ensured by direct reporting ofInternal Auditors to the Audit Committee of the Board. During the year the Companycontinued to implement their suggestions and recommendations to improve the controlenvironment. Internal Auditors findings are discussed on a quarterly basis and suitablecorrective actions taken as per the directions of Audit Committee on an ongoing basis toimprove efficiency in operations.

The Company has also its own Internal Audit Department. Internal Audit team under theguidance of Head of Internal Audit conduct various checks audit and submit their reportto the management and is responsible for implementing adequacy of internal control both interms of financial and operational control.

Policy on Prevention Prohibition and Redressal of Sexual Harassment at Workplace

The Company has zero tolerance for sexual harassment at workplace and has adopted aPolicy that aims to provide protection to employees at the workplace and prevent andredress complaints of sexual harassment and for matters connected or incidental theretowith the objective of providing a safe working environment where employees feel secure.The Company has also constituted an Internal Complaints Committee known as the Preventionof Sexual Harassment (POSH) Committee to inquire into complaints of sexual harassment andrecommend appropriate action.

The Company has not received any complaint of sexual harassment during the financialyear 2016-17.

Personnel & Industrial Relations

Personnel & industrial relations during the year were cordial & harmonious.

Acknowledgement

Your Directors place on record their sincere appreciation for the continued supportfrom shareholders customers suppliers Government authorities banks and financialinstitutions and other business associates. A particular note of thanks to all employeesof your company without whose contribution your company could not have achieved theyear's results.

On behalf of the Board of Directors

For Ortel Communications Ltd

Sd/- Sd/-
Jagi Mangat Panda Jyoti Bhusan Pany
Managing Director Director
Place: Bhubaneswar
Date: 19th May 2017