The 18.89 crore shares IPO of Bharti Infratel (BIL), a tower arm of country’s largest telecom operator Bharti Airtel, is set to open for subscription on Tuesday, December 11.
The company intends to raise around Rs 3,967-4,534 crore through the issue at a price band of Rs 210-240 per share. A discount of Rs 10 to the final issue price will be offered to retail investors.
Today it has received Rs 650.9 crore by allocating 2.83 crore shares at Rs 230 a share to 18 anchor investors .
Experts and brokerages are mixed in their opinion. Some feel it is best to avoid the issue citing reasons of being overvalued. While some analysts advise to subscribe it with a medium to long term view.
SP Tulsian of sptulsian.com says one can apply for the issue at lower end of price band. According to him, listing gains should be ruled out and one should apply with six months time horizon, considering pedigree and investor friendly record of the promoters. At Rs 240 per share, Bharti Airtel’s 79.42 percent stake will be valued at Rs 36,000 crore.
"At the lower and upper band of Rs 210-240 per share, shares are being issued to public at EV/EBITDA multiple of 10.8 times and 12.3 times, based on FY12E (annualised half year) earnings, respectively. On a PE multiple basis, the ratio is 40 times and 45 times, which is quite expensive, given the current market conditions. Although there are no domestic listed peers, international comparison (EV/EBITDA multiple of 16-18 times) is not like-to-like as the dynamics and economies differ. However, in such a case, the Rs 10 retail discount is positive. Had the price band been lower in the range of Rs 210-220, the issue would have been more promising," Tulsian reasoned.
Market Analyst, Ambareesh Baliga too agrees that the issue is slightly on the expensive side. However, going by the pedigree, he suggests investors to hold on it for the next one year to get good returns.
Meanwhile, IPO Analyst Arun Kejriwal is not interested in the issue. According to him, it is best to avoid the issue as the valuations are quite high (55-60 PE).
Research firms like Angel Broking and Ajcon Global too have recommended avoiding the issue on account of its high valuations. According to Angel Broking, the current IPO price band implies a June 2012 annualised EV/EBITDA of 11-13 times, EV/tower of 0.5-0.56 crore; PE of 45-53 times, and P/BV of 2.7-3.0 times, which it believes is at a premium.
“Low asset turnover and minimal use of leverage in a capital intensive industry have resulted in low RoE for Bharti Infratel over the past three years. Bharti Infratel’s RoE has remained in the range of 4.0-5.2 in the past couple of years. Also, the overcapacity in the industry is expected to limit the demand for rollout of new towers. Further, regulatory changes and the resultant uncertainty pose a risk to telecom players as their network rollout plans could be hampered,” Angel Broking added.
However, Prabhudas Lilladher rated IPO as subscribe because the valuation (of around 12 times FY12 EV/EBITDA and 0.1 time EV/Towers) is a steep discount to global peers. They feel strong revenue growth, along with margin expansion, gives room for multiple in-lines with global peers.
According to Prabhudas Lilladher, risks to the business model are: 1) A decrease in consumer demand for wireless telecommunications services due to adverse general economic conditions or other factors; 2) A deterioration in the financial condition of wireless telecommunications service providers generally due to declining tariffs, media convergence or other factors or their access to capital; and 3) Mergers or consolidations among telecos, resulting in reduced capital expenditure.
KR Choksey too advises subscribing it as the issue is coming out at around 26 percent discounted valuation at 13.7 times EV/EBITDA to global average of 17.4 times.
“We believe long term contracts with leading wireless service providers give strong revenue visibility in future. The company enjoys market leader position in both tower market share and tenancy. High capital requirement and comprehensive technology are major entry barriers for new entrants and it reduces risk for Bharti Infratel on operational front,” Choksey explained.
Meanwhile, Emkay and IndiaNivesh feels investors should apply for the issue at lower price band of Rs 210 .
“At the lower price band BIL is trading at Rs 5 million EV/tower, which we believe is justified as tower deals in the past have been valued in the range of Rs 4.6 million to Rs 5 million EV/Tower. Valuations similar to historic deals despite deterioration in overall business scenario is justified as BIL has committed anchor tenants that provides visibility on cash flows and its un-leveraged balance sheet also gives some comfort,” Emkay reasoned.
IndiaNivesh likes BIL’s sustainable revenue model with long-term revenue visibility. However, the firm remains cautious about the revenue growth potential going ahead.
According to them, wireless voice market has a little room for expansion as most of the prospective locations already been tapped. “Though, untapped rural voice market looks big in number, scaling in such locations would not be profitable in medium term for service providers. Industry is betting big on the data (3G/4G) business, however; expected uptakes, which will propel growth for tower industry in still far ahead,” IndiaNivesh added.
CRISIL had assigned grade 4/5 to the IPO , indicating that the fundamentals of the IPO are ‘above average’ relative to the other listed equity securities in India.
The company that has a pan India presence with operations in all 22 telecommunications circles intends to use issue proceeds for installation of 4,813 new towers; upgradation & replacement on existing towers; and green initiatives at tower sites.
As of September 2012, Bharti Infratel owned and operated 34,220 towers in 11 telecom circles while Indus, wherein the company has 42 percent equity interest along with 42 percent interest by Vodafone and 16 percent by Idea Cellular, operated 1,10,561 towers in 15 circles. Both companies currently provides access to their towers primarily to wireless telecom services providers on a shared basis.
BIL reported consolidated profit after tax of Rs 750.73 crore on total income of Rs 9,597.06 crore for the year ended March 31, 2012. For the period of six months ended September 30, 2012, the company recorded PAT of Rs 460.46 crore on total revenues of Rs 5090.89 crore.
The issue will close on December 14 for non-institutional bidders and retail individual investors and on December 13 for QIB bidders.
The issue comprises a fresh issue of over 14.62 crore equity shares of the company and an offer for sale of over 4.26 crore equity shares by Goldman Sachs, Anadale, Nomura and Compassvale / Temasek.
The equity shares are proposed to be listed on the Bombay Stock Exchange and National Stock Exchange.
The book running lead managers to the issue are DSP Merrill Lynch, JP Morgan India, Standard Chartered Securities, UBS Securities India, Barclays Securities India, Deutsche Equities India, Enam Securities and Kotak Mahindra Capital Company.
Sunil Shankar Matkar
READ MORE ON Bharti Infratel IPO, Bharti Airtel, SP Tulsian of sptulsian.com, Ambareesh Baliga, Arun Kejriwal, Angel Broking, Ajcon Global, Prabhudas Lilladher, KR Choksey, Emkay, IndiaNivesh
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