BOMBAY, 28 January — There is a big buzz going around the Indian capital markets and all seem to be talking a lot about this new initial public offering (IPO) which is hitting the markets here after a very very long time. The almost dead and comatose Indian IPO market seems to be rejuvenated and is kicking with life.
And who has breathed life into this dead Indian primary markets? The forthcoming IPO of Bharti Tele-Ventures, India’s largest cellphone service provider. The sheer magnitude of the issue has created ripples in the market. More so, a positive response to the issue could set the undertone for the much-awaited revival of the primary market.
Bharati’s IPO is all set to open for subscription today and this is not only the first issue of the year 2002 but also the first by any of the companies expected to dominate the newly deregulated market. It is offering 185.3 million shares, representing a 10 percent stake, to investors. The issue will close on Feb. 2. The shares will be listed on the Bombay and National stock exchanges and begin trading on Feb. 17.
The company has set a floor price of 45 rupees a share — representing a premium of Rs.35 for a share with a face value of Rs.10. At 45 rupees per share, Bharti would raise a minimum of 8.34 billion rupees ($172.7 million). Analysts said the actual price, to be set through a book-building process, will almost certainly be higher as the floor rate is below the 52 rupees per share paid by a clutch of private equity investors last May.
There is great excitement over this IPO in the Indian primary markets for two reasons — firstly, the Indian IPO market is seeing an offer, that too from a reputed company, after a very long time. And secondly, investor interest is more mainly because there hasn’t been a telecom IPO in India for the past 3-4 years and there is nothing slated over the next four months too.
This IPO by Bhari will be a litmus test for all telecom firms. The performance of this IPO will be keenly watched by telecom companies in the next few quarters. If it’s successful, several other telecom companies are widely expected to float issues. These include Hutchison, the Birla-Tata-AT&T-BPL combine, Escotel and Reliance Infocom. They could be seeking either a domestic or overseas listing.
Analysts are of the opinion that given the trackrecord of the IPO of Hughes Tele.com, the first private telecom services firm to be listed on the bourse, the Bharti Tele-Ventures share price may not appreciate substantially after the listing. Moreover, the promoters have made it categorically clear that they do not have any immediate plan to offer dividends. The factor in favor of this IPO is that, despite the retail investors having certain reservations, foreign institutional investors (FIIs) might clamor for this IPO. Most of the FIIs in India have made an exit from several second-rung software companies due to the global meltdown in technology stocks and now being flush with funds, they are awaiting the right opportunity to buy good stocks. Also besides, in the past few months, FIIs and retail investors have not yet got any major opportunity to pump funds into the equity through the IPO route.
Before jumping in to make investments in the IPO it is imperative for the investors to weigh the pros and cons. In terms of “pros” one has to consider the ongoing price war which has been unleashed in the Indian cellular industry due to the entry of government owned cellular services. Rates have come down drastically, so this will naturally affect the earnings.
Until now, Bharti has been more or less been able to maintain its average revenue per unit (ARPU) at Rs.1,200 per month. Going forward, analysts estimate the ARPU to decline significantly (could be in the range of 40 to 60 percent) over the next four years. But then the other side of the coin is that with reduction in tariff, subscriber base grows manifold. So whatever be the loss in terms of price reduction, might get partially covered up by increase in volumes. But at the same time, possibility of another entrant — either the Reliance or Tata group — could put Bharti under even more pressure.
Moreover, the IPO offer document itself states that Bharti has over Rs.2.04 billion of accumulated losses and certain subsidiaries will continue making losses in the foreseeable future. It has also stated that the repayment obligations of a huge debt of about Rs.13.65 billion as on September 2001, will restrict the company’s ability to pay any dividend or bonus for years to come. So all those who feel that the IPO from Bharti is like the sight of an oasis to the parched traveler in the desert, be careful, it could be a mirage.Wait and watch, maybe you will be able to pick up the stock from the secondary market at a much lower price. Atleast that is what experience says!
