December 2012

Bharti Infratel IPO – Analysis ~ P/E on higher side ~ No Comparables ~ Better to wait

Bharti Infratel IPO Analysis, Stocks Analysis, Investing, Listing, INdian Stocks IPO, Upcoming Stocks

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)

Particulars Mar 2012 Mar 2011 Mar 2010 Mar 2009
Net Sales 41581.60 28408.77 24530.30 26241.66
Total Income 42692.20 29298.13 29297.77 28662.74
PBIDT 17478.20 19531.89 17417.72 16383.11
PBT 6839.80 4895.32 3208.19 4374.42
PAT 4474.40 3481.90 2054.95 2963.38
Reserves 140303.40 132532.58 130199.12 98854.82
Net Worth 146111.40 138340.61 136007.15 104259.82
Total Debt 0.60 0.00 6000.00 41341.25
ROCE 4.79 3.74 2.68 3.46
RONW 3.15 2.54 1.71 2.87
PATM(%) 10.76 12.26 8.38 11.29
CPM(%) 36.32 62.51 63.64 55.27
CEPS 26.00 30.57 26.88 26.84

CARE (Credit Analysis & Research) IPO Analysis

CARE (Credit Analysis & Research) IPO Analysis , Review, Stocks, Investments, Indian Stock Markets,

Credit Analysis & Research has come up with a public issue of 7,199,700 Equity Shares of Rs 10 each in a price band of Rs 700-750 per equity share to raise up to Rs 540 crore.

The issue opens on Dec 07 2012 and closes on Dec 11 2012.

Credit Analysis & Research (CARE) is a second largest full service credit rating company in India, offering rating and grading services across a diverse range of instruments and industries including IPO grading, equity grading, and grading of various types of enterprises, including shipyards, maritime training institutes, construction companies and rating of real estate projects, among others.

The company with over 19 years of experience in rating debt instruments and related obligations covering a wide range of sectors, has rating relationships with 4,644 clients. CARE’s established presence in rating debt instruments and bank loans and facilities, domain experience across a range of sectors such as manufacturing, services, banks and infrastructure, strong rating credibility and brand presence along with strong financial position and profitability are its major strength.

On the flip side, the company’s dependence on its rating services business could be considered risky. However, given its diversification plan involving several risks, may lead to losses or lower returns from such activities. Further, migration to internal rating based approach for credit risk could have negative impact on results of operations and revenues of the company. Moreover, given the financial services industry that the company operates in, it may also run high on the risk of retaining key personnel, along with the risk of its limited experience in markets outside India.

Credit Analysis & Research has come up with a public issue of 7,199,700 Equity Shares of Rs 10 each in a price band of Rs 700-750 per equity share to raise up to Rs 540 crore. The company will not be receiving any proceeds from the Offer, and all proceeds shall go to the Selling Shareholders. Based on the EPS of Rs 40.52 for the year ended March 31, 2012, the P/E at the lower end of the Price Band comes at 17.28x and at the higher end of the Price Band it comes at 18.51x, while its competitors are ICRA and CRISIL trading at TTM PE multiple of 24.80x and 37.80x. The company is second largest rating agency in the country and has witnessed 40 per cent growth in profits and revenue in the last few years is having further plans of diversifying into new businesses along with increased global footprint.

The issue is attractive compared to it’s competitors as it is a debt free company and the rating business is expected to grow with more opportunities in offering alongwith the development of corporate bond market. It can be held in the portfolio for long term investment as well.

The financial performance of the companies over the past few years is given below (in Rs millions)

Particulars Mar 2011 Mar 2010 Mar 2009 Mar 2008
Net Sales 1708.69 1379.73 973.88 522.24
Total Income 1766.28 1537.97 1031.53 551.65
PBIDT 1362.20 1257.18 822.13 408.04
PBT 1340.10 1243.15 812.23 402.06
PAT 910.59 870.47 546.75 270.96
Reserves 2929.02 2090.33 1269.90 759.92
Net Worth 3024.20 2185.51 1347.65 837.67
Total Debt 0.00 0.00 0.00 0.00
ROCE 51.45 69.90 73.23 55.20
RONW 34.96 49.27 50.04 37.50
PATM(%) 53.29 63.09 56.14 51.88
CPM(%) 54.59 64.11 57.16 53.03
CEPS 97.99 92.93 71.59 35.62

July 2010

Octopus Outshines Investment Bank Experts….

Opaul_the_octopusctopus Paul , has been making headlines world over in this years FIFA world cup. It’s predictions on winner of football (soccer) matches is hitting Bull’s eye. Specially after the German defeat in Semis to Spain, the popularity of Octopus Paul has soared to new heights. It is a superstar. Although Germans are now demanding death threats. PETA is demanding the octopus be let free.

Well, almost anyone who is someone (except human ‘Pauls’) has an opinion on Paul …….

At least my children now know a little more about the octopus species. OK So much for that……

Now, I knew the following would come comparing the Octopus to Investment/Bank experts …And here we go at a cnbc story…  UBS, for example, gave Spain just a 4 percent chance of winning the trophy with their past performance model. The Netherlands, who meet Spain in the final Sunday, had just an 8 percent chance, the bank said. And our dear expert – Paul has nearly been flawless – o to say – ….. More at the following cnbc report

Somehow , Brought to my mind the famous orangutan coin flipping competition.

In 1984 Columbia Business School hosted a celebration of the fiftieth anniversary of Graham and Dodd’s book Security Analysis. The two principal speakers were Rochester’s Michael Jensen, an academic who had come out strongly in favour of the Efficient Market Hypothesis and Warren Buffett. Jensen stated that it was hard to tell if any of the followers of Graham and Dodd were really superior investors. He argued:

If I survey a field of untalented analysts all of whom are doing nothing but Flipping coins, I expect to see some who have tossed two heads in a row and even some who have tossed ten heads in a row.

This was a perfect entry for Buffett who envisaged a national coin-tossing contest. Each day, everyone in the United Sates flipped a coin with only those who continually flipped heads staying in the contest. After twenty days only around 215 flippers would remain. Buffett continued (Buffett, 1984):

But then some business school professor will probably be rude enough to bring up the fact that if 225 million orangutans had engaged in a similar exercise, the results would be much the same—215 egotistical orangutans with 20 straight winning flips.

Buffett then argued that there were important differences. What if, for example, all the orangutans came from the same zoo? When you replace head-flippers with “superinvestors”, he argued that this is precisely what happened. Buffett declared that there was an unusually high concentration of successful coin flippers, that is, “superinvestors”, in the investment world that “came from a very small intellectual village that could be called Graham-and-Doddsville”.

So coming back to Octopus Paul and the few super analysts in the investment world who get it right.
The big question to ponder is : Is it chance or is there something more to it….