IDEA is not interested in Hutch-Essar: Sanjeev Aga

Excerpts from Markets Midday on CNBC-TV18 Watch the full show » RELATED NEWS Two more telcos await to ring the IPO bell Idea to invest Rs 6000cr; to go public in Feb Idea likely to make pre-IPO placement of Rs 375cr Idea Cellular redefines mobility with Easy Mail Nifty BSE | NSE 25/05/12 Are Mutual Funds betting on Nifty? Other Stocks in this news Tech Mahindra |

The Managing Director at IDEA Cellular Sanjeev Aga claims the timing of their IPO was not planned but rather based on the company's requirements and that IDEA is not particularly enthused or concerned with the way the market behaves. He states that their outlook on business is a long-term one and they are not much valuation driven.

 

Aga states that IDEA is not interested in Hutch-Essar. On the anvil is rolling out operations in the Mumbai circle in 2007 and raising money for the operations expansion.  

 

Managing Director at  Prime Database Prithivi Haldea feels that for the  success of the primary market, the secondary market has to remain buoyant. A stable and sane secondary market will go a long way in helping the IPOs to mature, opines Haldea.

 

He is glad that the quality of issuance in India has gone up substantially because of the new SEBI entry norms, the stock exchange's diligence and  because of the 50% QIB participation. Due to it, a flag banner operator cannot come to the market and raise money and decamp. He observes that there is a lot of liquidity in the market.

 

Excerpts from CNBC-TV18's exclusive interview with Prithivi Haldea & Sanjeev Aga:

 

Q: We seem to have a very impressive list of IPOs that might come into the market. Fairly early in 2007 there is IDEA itself, then there is DLF, there is Fortis and many others - do you think basically 2007 will be as successful a year as 2006? At this juncture, what are the prospects looking like?

 

Haldea: Our Indian primary market has now got closely linked to the secondary market and therefore for the success of the primary market and for the IPOs it is essential that the secondary market remains buoyant. That doesn't mean that the Sensex has to be at 13,000-14,000 but we should not have crashes or huge volatility because that typically upsets the IPO pipeline.

 

So what is essential for the IPOs to mature during 2007 is not the dearth of issuers or dearth of investors but continuation of a stable and a sane secondary market.

 

Q: From 2006 we raised about Rs 25,000 crore and in FY07 the expectation is that we will double that amount from the primary markets, do you think that is a fair estimation?

 

Haldea: It could be even greater than Rs 55,000 crore in FY07 because there is no dearth of issuers or investors. There is a huge amount of liquidity both in the domestic and the international markets, so the entire raising would depend on how the secondary market behaves during the year.

 

For example in May'06, we saw the secondary market crash and suddenly for three months the IPO market went absolutely dry, so there is a clear co-relation between primary and secondary market. The number of issuers is already Rs 450 although all of them will not mature in 2007 but this pipeline is getting added everyday and very good issuers are in the pipeline and so we are not in a stage where all good quality issuers have gone away and only run of the mill or frontline IPOs are going to enter the market.

 

 The names of the contenders read like the who's who of the industry, I am glad that the quality of issuance in India has gone up substantially because of the new SEBI entry norms, the stock exchanges diligence and most importantly because of the 50% QIB participation. It is now almost impossible for a flag banner operator to come to the market and raise money and decamp.

 

Q: Is it only the secondary market and the primary market mood that is likely to impact your Idea offer or do you think probably the performance of the economy and the telecom sector and the M&A activity in that sector are more likely to impact the performance of you show?

 

Aga: We haven't been timing our IPO; we have done it by the logic of our own company's requirements and it's the first domestic primary fund raising for the telecom sector in five years and it's the first IPO from the Aditya Birla Group for much longer. The company has been around for nine-ten years, it is well-established, large number of subscribers. So in my opinion we are not particularly either enthused or concerned about how the market behaves.

 

Q: If you could take us through the details of your own IPO - what is the purpose for which you are raising and whether there will be any pre- IPO placement?

 

Aga: The size of the IPO is up to Rs 2,500 crore with a 15% green shoe option, there are five purposes enumerated in the draft prospectus - the big ones are of course capital expenditure for our existing operations then rollout of Mumbai circle, which we hope to do in calendar year 2007. We want to retire some of our preference shares then there are issue expenses and also rolling out our National Long Distance operations for which we have got a licence, so these are the five objectives of the issue.

 

We have provision for 15% pre-IPO placement, which is at the top-end of the price band but that is going to be restricted to the promoter companies or employees of the promoters or some HNI.

 

Q: How soon will you be making this placement? How soon can we expect an announcement?

 

Aga: A lot of it is tied to the IPO timing but we filed on the 5th December, we have already received in principal approvals from both the NSE and BSE. If all goes well we would be doing it in the matter of few weeks and the pre-IPO placement would be just before that.

 

Q: When will the IPO hit the market - the expectation is February-March, but could you put it down to one of the month?

 

Aga: I would guess it would be the former.

 

Q: Can you take us through how the business has been performing and given the AV Birla Groups track record so far you would only stay in a business where you are in the top three?

 

Aga: Not particularly top three; we are very much in the top three in the markets in which we operate but we are not top three if you take a weighted average of the entire country, so we certainly look at relevant market power. And we are already in the top three we would like to climb higher rather than stay where we are.

 

Our outlook on the business is very long-term, we are not particularly valuation driven, and we look at building solid businesses. The company has been in operations, it started with three original circles in Maharashtra, Gujarat and Andhra Pradesh but today we operate in 11 circles, we have licences for Mumbai and Bihar; together it covers almost 70% of the national market, we also have licence applications for the rest of the country.     

 

Q: My whole purpose in asking you about the top three is that your 1% was thrown in your hat so far at least in the Hutch buyout - that will probably take you to the top three in the country anyways?

 

Aga: That's no way central to our purpose; we haven't thrown our hat in.

 

Q: But the fact remains that with this development happening there is an expectation of a consolidation that might begin in the industry and more foreign participation. Do you see that bringing about any kind of intensity in your expansion plans?

 

Aga: That's a speculation that there might be some consolidation in the next year or two and starting with what we are hearing in the media about Hutch. But in a way ever since Birla Group has taken a dominant position we have anticipated the fact that India has seven-eight operators, it is hyper competitive and we have assumed that intensity of competition to continue. If there is consolidation it might be good but it is not an assumption we have made.

 

Q: There are very good companies coming in 2007, give us your top three picks?

 

Haldea: A good company is a bad investment at a high price, so unless I know the price of these issues it would be unfair to make any comment but just to react to the timing of the issue, history tells us that when the markets are down and out, only the brave and the desperate ones enter the market because whether it was Maruti, or Tech Mahindra or Bharti Tele ventrures they all came in at bad times and essentially they had to significantly under price their issue, so if a good issuer is not prepared to time his issue with the secondary market he should be then prepared to look at a huge under-pricing.

 

Otherwise, it is important that the secondary market should be buoyant because you tend to get priced according to peer group companies, you tend to meet with despondency in QIB and other investors and therefore if you are desperate for money you will have to look at under pricing and most good issuers would rather defer their issue than go through the route of under pricing unless they are keen to raise money at that point of time.