Bharti Infratel IPO – Analysis ~ P/E on higher side ~ No Comparables ~ Better to waitKapil
Bharti Infratel is coming out with a 100% book building, initial public issue of 188,900,000 equity shares of Rs 10 each, in a price band Rs 210-240 per equity share.
Up to 50% of the issue will be allocated to Qualified Institutional Buyer (QIBs) including 5% to mutual funds, further 15% to non-institutional bidders and the remaining 35% for the retail investors.
The issue will open for subscription on December 10, 2012 and will close on December 14, 2012.
Bharti Infratel along with Indus (a joint venture with Vodafone India and Idea Cellular) is one of the largest tower infrastructure providers in India, based on the number of towers that Bharti Infratel owns and operates and the number of towers owned or operated by Indus. Having a nationwide presence with operations in all 22 telecommunications Circles in India.
The telecom tower business largely depends on telecom operators. Bharti Infratel and Indus have MSAs with the leading wireless telecommunications service providers in India. With the number of telecom operators revenues affected due to the cancellation of 122 telecom licences in February this year, has resulted in a fall of about 30,000 tenants. But When the telecom services sector does well, then the tower sector also does well, but when the services part is not doing well, the tower sector is largely still assured of its revenues due to long-term contracts.
However, the company’s business is highly dependent on factors affecting the wireless telecommunications industry in India, particular the growth of their key customers.
Further the tower infrastructure business in India is highly competitive in nature and apart from the established players like reliance Infratel the company faces competition from independent tower infrastructure companies including service providers such as GTL Infrastructure. Also the business is operations get affected by various regulatory measures with respect to tower sharing among wireless telecommunications service providers. There is another concern, Indus – a joint venture with Vodafone and Idea and operating a joint venture often requires additional organizational formalities as well as time-consuming procedures.
It is the first telecom tower company to enter the capital market and will be the biggest IPO since that of Coal India’s two years ago.
CRISIL has assigned IPO grade of ‘4/5’, indicating above average fundamentals to the Initial Public Offering of the company.
The issue comprises a fresh issue of 146,234,112 equity shares by the company, and an offer for sale of 42,665,888 equity shares by four of its shareholders, including Temasek and Goldman Sachs. The issue will constitute 10 per cent of the post-issue paid-up equity share capital of the company. Bharti Airtel, which owns about 86 per cent of Bharti Infratel, is not selling any shares but this issue will result in 10% equity dilution in the company and reduce Bharti Airtel’s stake in the subsidiary from 86.09% to 79.42%. The issue has been offered in a price band of Rs 210 -240 a share, based on the EPS of 4.31 for the Year Ended March 31, 2012 the P/E at the lower price band comes to 48.73x, while it comes at 55.68x, as there are no listed companies in India that engage in a business similar to that of the Company.
The issue proceeds will be used for setting up 4,813 new towers, at an estimated cost of Rs 1,087 crore, while up gradation and replacement of existing towers would require Rs 1,214 crore and green initiatives entail a cost of Rs 639 crore. The company is going for all modern methods and plans to reduce dependency on conventional fuel for powering its towers by switching to renewable energy sources at several remote locations.
The issue appears overpriced, at these levels. However, there are no comparables and though there was a lull in the business after the cancellation of 122 telecom licenses early this year, but with refarming and fresh auction of spectrum, and more clarity in policy, investments are likely to return to the sector after battling regulatory uncertainty and weak investor sentiment for more than a year.
Investors can wait for the listing to happen and see how the market reacts, and if possible get the stock at a discount.
The financials are given below (in Rs Millions)
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