A Quick Skim of the Draft Red Herring Prospectus of Bharti Infratel Ltd suggests that the fully diluted Equity of the company is expected to be Rs 1890 Cr or 189 Cr shares each of Rs 10. Net Profit for FY 2012 was Rs 750 Cr and even if it grows at 30% it is expected to be Rs 975 Cr. Thus expected SPF for FY 2013 will be Rs 5.15.
Share Price Band of Bharti Infratel - Rs 210 to Rs 240
Retail Individual Bidders Discount - 5%
Valuation on FY 2013 Earnings - 40.77 at Lower Band to 46.60 at Upper Band appears expensive. However, the
Net Profit of Bharti Infratel has grown at a whopping 55% CAGR between FY09 and FY12 from Rs 195 Cr to Rs 750 CrWhat is the Price at Venture Capitalists and Private Equity Firms have Bought Bharti Infratel ?VCs have been subscribing to Bharti Infratel since 2008. After adjusting to the Bonus
VCs and PEs have been given their net Price of Purchase of share is Rs 220. They have been given dividends every year, last one was Rs 2.5 / Share
Bharti Management Transparency - 100% mainly due to SingTel on Board of Bharti Airtel. Bhharti Airtel holding 86% share in Bharti Infratel is not selling any share in this IPO.
Views of Brokerage and Research Entities on Bharti Infratel IPOIndiaNivesh Analysts Daljeet S. Kohli and Amar Mourya has the following recommendation,
The untapped rural voice market looks big in number, scaling in such locations would not be profitable in mediumterm for service providers. Industry is betting big on the data (3G/4G) business, however; expected uptakes, which will propel growth for tower industry in still far ahead.
The initial public offering (IPO) is priced at 2.8-3.2x PBV and 11.5-13.0x EV/EBITDA at lower and upper end of the price band. We recommend investors to apply at low end of valuation
IDFC Securities has the following View,
In terms of valuation, the price band of Rs210-240 per share implies a Jun’12 annualized EV/EBITDA of 11-13x; EV/tenant of US$50K-56k; P/E of 47-54x, and P/B of 2.3-2.6x. We believe that lower-end of the price band is close to the fair zone and leaves little upside on the table for an investor given the muted growth expectation, FCF yield of ~5% and current EBIT/ tenant of only US$2.6k per annum. We recommend investors to subscribe to the issuance for a long-term bet as Bharti Infratel would gain from better penetration in Category B&C circles and evolution of data services/ re-farming. We do not see significant listing gains
KR Choksey has the following recommendation,
Bharti Infratel’s IPO is coming at ~26% discounted valuation at 13.7x EV/EBITDA to global average of 17.4x EV/EBITDA. We believe long term contracts with leading wireless service providers give strong revenue visibility in future. The company enjoys market leader position in both tower market share and tenancy. High capital requirement and comprehensive technology are major entry barriers for new entrants and it reduces risk for Bharti Infratel on operational front. We recommend to “SUBSCRIBE” this IPO.
GEPL Capital has the following Review on Bharti Infratel
At the upper end of its price band of Rs.240 (and Rs.230 for retail investors), Bharti Infratel Ltd. Is available at an EV/EBITDA of 12.17x (and 11.69x for retail investors). This is at a discount to its global peers which have an EV/EBITDA ratio of more than 18x and GTL Infra, the Indian peer which is also trading at 18x. Considering the huge scope for telecom penetration, presence of strong promoters in both Bharti Infratel and Indus Towers and robust financials of the company, we believe that Bharti Infratel is a good, solid long term investment story.
Ambit Capital has the following Views on the IPO of Bharti Infratel
At 10-12x FY14 EV/EBITDA and 38-44x FY14 earnings, we believe BIL’s valuations are expensive. We expect mid- single digit EBITDA CAGR over FY12-14, and we believe that BIL has poor economics compared with global tower peers. At the suggested valuation range, BIL would comprise 20-22% of Bharti Airtel’s EV and 25-29% of its market cap. We recommend avoiding the IPO at current valuations. If the IPO were priced at ` 140-170 (rather than ` 210-240), it would have made more sense for investors to participate.
SPA Securities Analyst Amit Aggarwal's Views on the IPO
We expect these scenarios to play in favor of the company going forward which would improve its Margins from 30% to 80% (int’l peers). Taking this into consideration we consider the current per tower valuation to go up from $100,000 to $400,000-$600,000 which its int’l peers are getting given the superior capital structure. Thus we recommend SUBSCRIBE to the Bharti Infratel issue.
Nirmal Bang Analyst Harist Shah has the following report on the IPO,
Our WACC is 12.7% owing to low debt-equity ratio of 0.2x, with post-tax cost of debt at 7%. We assume 0.8x beta, which is the average of the betas of global peers American Tower, SBA Communications and Crown Castle. We take 8% as risk-free rate and 8% as equity risk premium. Thus, cost of equity (CoE) works out to 14.4%. We assume 3% terminal growth. Thus, present value (PV) of FCF until FY22E works out to Rs270.7bn, while PV of the terminal value is Rs254.6bn, implying total EV of Rs525.4bn. Adjusted for net debt, total equity value is Rs556.4bn, implying a fair value of Rs278. This implies a 32% upside from the lower end and a 16% upside from the upper end of the IPO price band. Therefore, we recommend investors to subscribe to the IPO.
Emkay Share Research has the following note on the IPO of Bharti Infratel
Valuations at H1FY13 annualized EV/EBITDA stands at 11.9x/10.4x on Higher/Lower price band. Implied EV/tower is Rs5.6mn/Rs5.0mn and EV/tenant at Rs2.9mn/Rs 2.6mn. At the lower price band BIL is trading at Rs5mn EV/tower, which we believe is justified as tower deals in the past have been valued in the range of Rs4.6mn to Rs5mn EV/Tower. Valuations similar to historic deals despite deterioration in overall business scenario is justified as BIL has committed anchor tenants that provides visibility on cash flows and its un-leveraged balance sheet also gives some comfort. Subscribe at lower price band of Rs210
Religare Securities has the following views
The current IPO band of Rs 210-Rs 240 implies EV/EBITDA valuation of 10.5x-12x on H1FY13 annualised and 43x-49x P/E. Implied EV/tower in the IPO band is Rs 5mn-Rs 5.6mn and EV/tenant stands at Rs 2.6mn-Rs 2.9mn. Apply at Lower End of the Price Band
Philip Capital has the following take,
Bharti Infratel, at the top end of the price band of the IPO will command an Enterprise Value of Rs 410bn and will trade at EV/EBIDTA of 11x on FY13E EBIDTA. The valuation multiple is a significant discount to the global peers which trade at 16‐18x on EV/EBIDTA based multiples. We value the company based on DCF methodology at Rs 279 which presents an upside of 16% on the top end of price band. We believe Bharti
Infratel has the potential to generate stable long‐term returns to its shareholders.
Angel Broking Analysts Ankita Somani and Viral Shah have taken a contrary Call not to Subscribe to the issue with the following note,
In terms of valuation, the current IPO price band of `210-240 implies a June 2012 annualized EV/EBITDA of 11-13x, EV/tower of `0.5-0.56cr; P/E of 45-53x, and P/BV of 2.7-3.0x, which we believe is at a premium. In addition, low asset turnover and minimal use of leverage in a capital intensive industry have resulted in low RoE for Bharti Infratel over the past three years. Bharti Infratel’s RoE has remained in the range of 4.0-5.2 in the past couple of years. Also, the overcapacity in the industry is expected to limit the demand for rollout of new towers. Further, regulatory changes and the resultant uncertainty pose a risk to telecom players as their network rollout plans could be hampered. Hence, we recommend Avoid to the issue on account of its premium valuations.
IndiaInfoline has the following Review
We recommend investors to subscribe to the Bharti Infratel IPO at the lower end of its price range i.e. at Rs210. At the lower price range, Bharti would be valued at 9.6x FY14 EV/EBIDTA and 2x FY14 P/B which is at a discount to its international peers (avg ~16x CY13 EV/EBIDTA) though we believe the discount is justified given the lower RoE profile and industry overcapacity in the near term (as seen in industry tenancy of 1.7x).
SBI Cap Securities recommends as follows,
Bharti Infratel Ltd. is currently valued at 43.1x and 49.2x of its post issue annualized H1FY13 earnings at lower and upper price band respectively whereas it is valued at 2.7x and 3.1x on P/BV multiple. The Company's leading position in the domestic market provides it a greater thrust to take advantage of new opportunities in technology and data space. A strong clientele consisiting of Vodafone, Idea and Bharti Airtel coupled with long term contracts promises revenue visibility. Strong financial position along with signifiacnt entry barriers for new players augurs well for Bharti Infratel. However, the struggling state of the telecom sector remains a major concern. Hence we recommend investors to Subscribe the issue with a long term perspective
Fullerton has the following views
At a price of Rs 240 (upper band), Bharti Infratel is available at an EV/EBITDA of ~12.0x. This is at a discount to its global (American towers, TBIG, SBA) and domestic (GTL Infra) peers, which are trading at an EV/EBITDA multiple of ~18.0x. We believe long term contracts with leading wireless service providers give strong revenue visibility in future. The company enjoys market leader position in both tower market share and tenancy. High capital requirement and comprehensive technology are major entry barriers for new entrants and it reduces risk for Bharti Infratel on operational front. We recommend ‘Subscribe’ rating to the IPO.
