BhartiInfratel Limited (BIL) is tapping the capital markets with its issue for 18.89 cr shares. The issue comprises of a fresh issue of 14.62 cr shares and an offer for sale of 4.26 cr shares in a price band of Rs 210-240. There is a discount of Rs 10 to retail investors. The company has allotted 2.83 cr shares to anchor investors at Rs 230. There is just one Indian mutual fund who has invested in the anchor book. The QIB book closed yesterday and the overall issue has been subscribed 1.21 times. The issue for retail and HNI’s closes on Friday the 14th of December.
| Rupees in millions | ||||
| 6 Months | ||||
| Income | Mar-10 | Mar-11 | Mar-12 | Sep-12 |
| Revenue from operations | 70387.30 | 85081.10 | 94520.60 | 49719.50 |
| Other Income | 901.10 | 1176.80 | 1450.00 | 1189.40 |
| Total Revenue | 71288.40 | 86257.90 | 95970.60 | 50908.90 |
| Expenses | ||||
| Power and fuel 30,151.2 25,251.7 19,464.4 2,581.7 | 25251.70 | 30151.20 | 33583.10 | 18489.70 |
| Rent | 8799.70 | 9772.70 | 10581.00 | 5279.80 |
| Employee Benefits Expenses | 2403.70 | 2854.40 | 2976.80 | 1575.40 |
| Other Expenses | 9746.60 | 11014.00 | 11987.70 | 5937.20 |
| Charity and Donation | 1.10 | 0.70 | 1.00 | 0.10 |
| Total Expenditure | 46202.80 | 53793.00 | 59129.60 | 31282.20 |
| Earnings Before interest,tax, dep & amortization | 25085.60 | 32464.90 | 36841.00 | 19626.70 |
| Depreciation and amortization expenses | 19957.60 | 22446.50 | 23714.30 | 12041.50 |
| Less: Adj with Gen Reserve in BAL Bharti Infratel demerger scheme | -2340.30 | -2255.40 | -2251.90 | -1106.60 |
| Finance Cost | 3539.90 | 4326.40 | 4072.00 | 1881.80 |
| Total | 21157.20 | 24517.50 | 25534.40 | 12816.70 |
| Restated Profit before Tax | 3928.40 | 7947.40 | 11306.60 | 6810.00 |
| Tax expenses | 1398.70 | 2432.60 | 3799.30 | 2205.40 |
| Restated Profit after Tax | 2529.70 | 5514.80 | 7507.30 | 4604.60 |
The issue is expensive and leaves little or absolutely no room for appreciation in the short to medium term. The valuations based on pre-money consolidated historical earnings are at 48.85 times at the lower end of the price band and at 55.83 times at the upper end of the price band.
I believe this issue is expensive and does not offer any value at current levels. Hence the analysis of the same is also short and to the point.
Some of the negatives that I have found are as follows: –
- The issue has 13 merchant bankers and 3 syndicate members. Why so many?
- The key driver for growth would be increase in tenancy per tower from the present 1.91 to 2.46 in the next couple of years. This seems difficult as the three leading telecom companies Bharti, Vodafone and IDEA who have a market share of almost 80% are already anchor tenants.
- There are other tower companies and it does not mean that all of them have no tenants.
- Valuations on PE basis look unjustifiable.
- Selling shareholders after almost five years have not made money when considering cost of capital.
- Valuations on EV/EBITDA are also ahead of time and it would take almost 24-30 months to come to realistic levels. With the historical performance of the group being what it is it might make sense looking at the stock once it settles down after listing.
Conclusion
I believe one should allow the share to list and then look at the market price and valuations at that point of time.BhartiAirtel was India’s first book built issue and it took the company 11 months to bottom out and a further 7 months to trade at a premium to the issue price. I am not sure whether history will repeat itself or not but one needs to look at it carefully. Secondly though the PE investors are selling shares after about five years, the currency value of the Dollar in March 2008when they invested was between Rs 39-40 while currently it is about Rs 54-56. Irrespective of their selling price, they have lost on the currency by anywhere between 32-35%. The average cost of the PE investors even after considering the bonus issue which was in the ratio of 9999 shares for every share held was Rs 219.38 per share after adjusting for bonus issues. To end my argument I would like to reiterate that IPO investors lost in BhartiAirtel, PE investors lost in BhartiInfratel and in all probability IPO investors in BhartiInfratel would also lose money.
SEBI Disclaimer : – I do not intend to subscribe to the issue
