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30 September, 2014 23:20 IST
News
Should you subscribe to Bharti InfraTel, CARE and PC Jeweller IPO?
Source: IRIS (07-DEC-12)
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Initial public offers of PC Jeweller and Bharti Infratel will open in the coming week. CARE issue has opened on Friday. We have collated views of analysts on how they see public offers from these companies:

Bharti Infratel

Bharti Infratel (BIL), a part of Bharti group and one of the largest tower infrastructure providers in India, will open initial public offer (IPO) on December 11. It is offering 188.90 million shares of Rs 10 each at price band of Rs 210 to Rs 240 a share. It is hoping to raise funds in the range of Rs 39.67 billion to Rs 45.34 billion via this public issue.

Viral Shah & Ankita Somani, Angel Broking:

Bharti Infratel has registered a 3.4% and 9.6% CAGR in towers and tenancies, respectively over the last three years. The company posted 15.9% and 21.0% revenue and EBITDA CAGR over FY2010-12. In terms of valuation, the current IPO price band of Rs 210-240 implies a June 2012 annualized EV/EBITDA of 11-13x, EV/tower of Rs 05-05.6 million; P/E of 45-53x, and P/BV of 2.7-3x, 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 4-5.2 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.

Amar Mourya, IndiaNivesh Securities:

We like BIL's sustainable revenue model with long-term revenue visibility. High regulatory hurdles and capex requirement along with high economies of scale are key barriers for new entrant.

However, we remain cautious about the revenue growth potential going ahead. In our view, wireless voice market has a little room for expansion as most of the prospective locations already been tapped. Though, untapped rural voice market looks big in number, scaling in such locations would not be profitable in medium-term 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.

Credit Analysis & Research (CARE)

Initial public offer (IPO) of CARE opened for subscription today. The rating agency plans to raise Rs 5.04-5.40 billion by issuing 7.2 million shares of the face value of Rs 10 each through the issue. It has fixed the price band for its initial public offer (IPO) of shares at Rs 700-750 a share. The issue will close on December 11. Promoters will dilute 25.22% of their holding in the company through the stake sale.

Prashanth Tapse, AVP Research Mehta Equities:

We believe CARE IPO provides investor an opportunity to invest in the leading credit rating company in India. This issue is available inline with market value or equal to listed peers like ICRA and Crisil trading at 4.8 & 17 times the book value, hence keeping the scope of growth same to all the rating players, we believe CARE has better growth potential and expect to perform well in the industry growth. CARE is currently available at 5.3 and 5.6 times on P/BV valuation and on PE valuations CARE is available at 18.5x in comparison to ICRA & CRISIL which is trading at 27x and 35x. Hence, we advice investors to 'subscribe' this IPO.

SP Tulsian, independent analyst:

CARE, having 85% of its revenue coming from ratings business, which earns better margins, is thus being offering to the public at very attractive valuations at PE of 22 at the upper price band, in the current public issue. Financials of rating agencies India Ratings (formerly Fitch), Brickworks and SME Rating, being unlisted, are not available for peer comparison. CARE is seeking a market cap of Rs 21.41 billion and enterprise value of Rs 18.81 billion, at upper end of the price band of Rs 750. Thus, we find the issue very attractively priced and recommend subscribe to the issue. Given the strong fundamentals and good institutional shareholding, the share can also be a good long term bet.

PC Jeweller

PC Jeweller will hit the capital market on December 10 with an initial public offer (IPO) to raise up to Rs 6.09 billion for funding its expansion plans. The company has fixed the price band of the IPO, comprising of over 45.1 million equity shares, at Rs 125-135 a share having a face value of Rs 10 each. The public issue will close on December 12.

Prashanth Tapse, AVP Research Mehta Equities:

There is a huge growth opportunity for investors to park there money into a leading gold jewellery player. Money raised would be utilised to ramp up new stores in high streets which inturn supports the growth plans. We foresee that the strong brand and growth in organized gold jewellery market would be the key success factor for PCJ going ahead. On valuation parse we see that the IPO is prices very attractive as it is quoted 6.3x FY13E annualized earnings which is cheaper when compared to listed gold jewellery players which are trading in the range of 15-25x price earnings in the market, hence keeping the scope of growth same to all the gold retail players, we advice inventors to subscribe to PCJ IPO for listing gains as well as the long term.

SP Tulsian, independent analyst:

As of Sept. 30, 2012, company's debtors stood at Rs 7.03 billion, representing 68 days of sales. If the company earns over 65% of its revenues from retail domestic sales, on which, as per industry practice, negligible credit period is extended, why are the debtors days so high? Retail focused peers such as Titan Industries and TBZ have these days at 6 and 1 respectively, as of Sept. 30, 2012. Even historically, debtor days have been very high for PC Jeweller, at 81, 77 and 91 days for FY12, FY11 and FY10 respectively. Company's MD Balram Garg's remuneration has been increased to Rs 60 million per annum prior to the IPO, which was Rs 1.63 million in FY 10, Rs 45 million in FY12! This hike over the years is not commensurate with company's annual profits (PAT for FY10, FY11 and FY12 was Rs 780 million, Rs 1.48 billion and Rs 2.3 billion respectively). Company is justifying such hike in remuneration prior to the IPO by giving rang of salaries of MDs and CEOs of Nifty companies. However, such comparison is both ridiculous and futile. Firstly, all of the 50 Nifty companies have market cap of Rs 100 billion plus. Moreover, as pointed out on page 15 of the RHP, only 20 Nifty companies had their MDs/CEOs earn remuneration higher than Balram Garg. Thus, the comparison, besides being alarming, is quite superfluous! Investors can apply in the issue.

Disclaimer: IRIS has taken due care and caution in compilation of data for its web site. Information has been obtained by IRIS from sources which it considers reliable. However, IRIS does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. IRIS especially states that it has no financial liability whatsoever to any user on account of the use of information provided on its website.


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