Bharti Infratel Limited –Issue Subscribed but it’s a thumb’s down from Retail& HNI

December 15th, 2012 Comments Off on Bharti Infratel Limited –Issue Subscribed but it’s a thumb’s down from Retail& HNI


Bharti Infratel Limited (BIL) which had tapped the capital markets with 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 managed to get its issue subscribed due to oversubscription from the QIB category. The issue had opened on Tuesday the 11th December and closed for bidding for HNI’s and retail investors on Friday the 14th of December. Retail investors would be entitled to a discount of Rs 10 per share. The issue which had garnered an overall support of 1.21 times after the QIB bids closed inched up to 1.30 times.

The issue subscription needs to be closely looked at. In any issue half the total issue size is reserved for non-institutional investors with 35% reserved for retail and 15% for the HNI’s. The success of an issue is gauged from subscription not only from the QIB category but also combined from these categories. The non-institutional category had received combined bids of 66.73 lac shares at the end of day 3 when QIB bidding ended. Even after seeing that the overall book is subscribed by QIB alone and there would be no problem as far as the issue going through is concerned, the book did not get subscription for more than 21.77% of the reserved category for HNI’s and retail. The total subscription from this category on the fourth day or extra day reserved for this category was 138.89 lac shares. The overall subscription in this category trebled but still fell far short of the required subscription. In the past two issues from CARE and PCJ, one saw huge response coming in from these two categories and they have matched the QIB bidders.

One must also remember that there was a Rs 10 per share discount for retail investors. What is even more interesting is that there were as many as 13 Investment bankers and three syndicate members who were not common with the merchant bankers, as part of the fund raising exercise. What went wrong? The issue was expensive and no efforts were made to explain to retail investors why they should put their money in this issue. The proof of the pudding is in the eating and the subscription data shows that retail and HNI’s have simply ignored the issue.

The issue would garner between Rs 3,967 crs at the lower end of the price band to Rs 4,534 crs at the top end of the price band. The issue is likely to be priced at Rs 230 which was the anchor allocation price unless the management becomes considerate and magnanimous and offers a further reduction looking at the poor non-institutional support.

The details of the subscription level in various categories are given below: –

Category Shares Offered Shares Subscribed Times
QIB 66115000 187928700 2.84
NII 28335000 8320350 0.29
Retail     66115000 12243000 0.19
Overall  160565000 208492050 1.30
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Performance of Newly Listed Shares as on 14th December 2012

December 15th, 2012 Comments Off on Performance of Newly Listed Shares as on 14th December 2012

Name Date of listing Issue Price closing  price closing price % gain loss  change over
14th December 7th December over week lssue price
Thejo Engineering Limited SME NSE) 18th September 402.00 377.45 375.00 0.61 -6.11
Tara Jewels Limited 6th December 230.00 220.65 218.70 0.85 -4.07
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BhartiInfratel Limited– Expensive valuations hence Retail should skip the issue

December 14th, 2012 Comments Off on BhartiInfratel Limited– Expensive valuations hence Retail should skip the issue


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

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