Believe pricing was right: Bharti Infratel

Bharti Infratel had a dismal listing today. The stock dropped below Rs 200 level in the early trade. 

In an interview to CNBC-TV18, Akhil Gupta, managing director and vice chairman, Bharti Infratel says he believes that the pricing was right. "It is too early to comment on listing price," he asserts. Funds raised from the initial public offering (IPO), he says, will be used primarily for capex needs. According to him, one needs to look at the long-term opportunity of the tower business. "There is no over-capacity in the tower business at the moment," he elaborates. He says the company has no concrete timeline for Indus tower listing. Below is the edited transcript of his interview. Q: Do you think high valuation probably is one of the reasons why retail investors did not come in? Is that proved in some sense now? A: If you look at the volumes, they are thin. I would always be a little surprised that the retail investor would be in a better position to discover a price than what you call the qualified institutional buyer. They are called qualified buyers because they know better how to discover a price. Q: Now that you have raised Rs 4,170 crore, can you take us through the usage of the proceeds and also the timeline in which you are looking at using them? A: About 23 percent of that is offer-for-sale (OFS). So, around Rs 3,000 crore will come to us. That is mainly for the capex over the next two to two-and-a-quarter years. Q: What kind of growth are you expecting for this financial year as well as next year? Where can we see the tenancy ratio settling down at in the next couple of years? A: As a matter of principle, we do not give guidance. We will not be giving guidance for this company as well. Research reports say that tenancy for the industry should go up from 1.7 to 2.46 over five years. We are already at 1.9. So, the attempt would be to keep increasing it as far as you can and as quickly as you can. Q: Some analysts are not very bullish about the tenancy ratio aspect because they sight that a lot of telecom companies such as Reliance Communications (RCOM) and Tata Teleservices Maharashtra Ltd (TTML) have their own tower divisions. Is it likely to impact? How do you see that impacting? A: They have always had their tower divisions, but our tenancy has been going up. Infact Tatas, RCOM, everybody is a tenant on our towers. So, it is not that because they have a tower company, they will not come to our towers. They are all tenants on our towers. _PAGEBREAK_ Q: Keeping in mind that the growth has slowed down and has not picked up as much atleast with 3G and for 4G also, do you see the tenancy target will be achieved in longer time than what was expected? A: I think 3G, contrary to popular belief, is picking up very well. Wherever we are taking 3G, we are getting a very good response. These things do need some momentum. They take sometime. It has just been one year, since we have started rolling it out. So, it will take sometime. But it is picking up very well, if you look at the data traffic, it has gone up by 60 percent in the last six months. That is not a small growth. It is a huge growth. So, I have no doubt that the 3G rollouts will pick up. That should mean more tenancies. 4G may be a little away, I think the ecosystem has to develop. Q: There is an Empowered Group of Ministers (EGoM), which is going to take place next week, to decide further on the auction procedure. What are your expectations for 2013 for the telecom industry? How do you see it panning out? Will it be a better year? A: I won’t talk about auctions. I think that is what the government has to do what it has to do. I do believe that 2013 should be a better year for telecom for two-three reasons. One, we have seen the cost coming down, especially the acquisition cost. I have no doubt that the realised rates will go up, not shoot, but they will start climbing up. I think it will be a better year. The data services will get rolled out deeper into the country. That will bring additional revenues to the telecom companies. So, I have certainly better hopes for 2013. Q: Shifting focus on Infratel per se, what will be your inorganic growth plans? A: There is no plan, but definitely we would look at any opportunity which comes our way. But there is nothing on the horizon at this point of time. Q: What is the plan of action for Indus Towers? A: Indus is a separate company. It is a separate management. It will continue to grow very strongly. Its legal process of merger is going on. At this point of time, it is a status quo. Q: You also made an interesting point in your speech that after Bharti Infratel listing it could prompt other tower companies also to come into the market. Is Indus also lined up next? A: Indus is not lined up at this point of time. But it is not prohibited from going and listing at some point of time. I don’t know when. But there are other tower companies like Reliance Infratel and others, I think it will be good to have some companies on the stock exchanges. Q: Do you think you are confident about the pricing? A: It’s not my confidence. The qualified institutional buyers oversubscribed it almost three times. So, I am looking at their confidence. I believe the pricing was absolutely correct. Our book was at Rs 230. Q: There are some concerns with respect to over capacity in the sector and from what we could understand funds will be employed to install more towers. How do you see that issue panning out in terms of over capacity? A: I don’t think there is any over capacity. If there was over capacity, there would not be increase in tenancies and towers coming up. It is not that these towers are movable. They don’t have wheels. So if the tower is somewhere and I have another place, it is not necessary that we will compete on each tower. Q: What are your private equity investors telling you at this point? After this issue, they have part exited. What is the kind of exit route you are providing them in future? What kind of returns they could be expecting now? A: The good thing of listing is the exit route is very clear now. They have a one year lock-in. After that, they are all free to sell. I don’t have to determine what returns they can get, the market has to determine that. All I can do and say to my private equity investors is that the good work, which our teams have been doing, I have absolutely no doubt that will continue. Ultimately, it is the performance of the company which would speak.