Idea Cellular, an Aditya Birla Group company, which is amongst the leading mobile operators in India and currently operates in 11 Circles, is open for subscription with an initial public offering, IPO, aggregating Rs 21,250 million, of equity shares of Rs 10 each, for cash, at a premium to be decided through a 100% book-building process.
The price band for the issue has been fixed between Rs 65 and Rs 75 per equity share.
The First Global report on Idea Cellular IPO:
Idea Cellular (IDEA) IPO: Frightfully expensive valuation leaves less room for after-market premium; recommend Ignore
IDEA's problems with joint-ownership are too well-known to recount. IDEA's joint ownership had resulted in its growth being largely restricted to 8 circles (out of the 23 circles in India), thus leaving it far behind its competitors, such as Reliance Communications (RCOM), Hutchison Essar (HEL) and BSNL, who were either smaller or of similar size around three years ago. However, under the sole leadership of the Aditya Birla Group, IDEA has now been showing a lot of promise in a very short time. The company's share in India's total net subscriber additions stood at 10% in the first 9 months of FY07, as compared to a market share of 8% at the end of FY06.
Over the last couple of years, IDEA's ARPU has declined quite sharply, especially in comparison to that of BHARTIARTL, which we believe, has been on account of the former's slower expansion. We believe that the quality of incremental subscribers (in terms of usage and ARPUs) deteriorates with increasing penetration levels in a particular town and hence, continued expansion in new under penetrated areas, where the potential for high quality subscribers is still untapped, enables an operator to rein in the pressure on declining ARPUs.
While IDEA's return ratios are still very low as compared with that of BHARTIARTL, they have shown reasonable improvement, with the RoCE up from 1.9% in FY04 to 11.6% in FY06, and look all set to improve further.
All's well with IDEA till one comes down to the valuation metrics. At 39x FY07 earnings (Bharti trades at 35x FY07e), IDEA is frightfully expensive. It is priced to perfection, and there is a reasonable chance that the stock may not get much after-market premium. In our view, there is no valuation cushion being offered to investors, and one is simply better off buying more of the listed wireless plays.
In any case, the after market track record of heavily-hyped, "much waited" IPOs, is hardly worth talking about. Much of the cream is skimmed away through the hype, not leaving much on the table. Bharti Airtel itself tanked 50% post-issue! One makes more money in less-known, less-hyped IPOs (Pyramid Saimira is a terrific case in point), and unfortunately, IDEA doesn't fall into that category. So, invest only if you want to adopt the "Article of Faith" style of investing.
No comments:
Post a Comment