Sunil Bharti Mittal must be a happy man. In all the gloom and uncertainty of spectrum auctions and regulatory overhang, Bharti Infratel, a towerco owned by Bharti Airtel, of which Mittal is chairman and MD, has managed to place some 189 million shares with investors which should fetch it a handsome R4,500 crore. The Initial Public Offering (IPO) couldnt have been better timed; the stock markets have been on a roll putting on 16% in the last six months with most of this, or roughly 11%, gained in the last four months.The rally has been driven by foreign portfolio investors who seem to be convinced the Indian economy has started bottoming out and that the government will manage to push through some policy reforms, which, in turn, will help revive corporate earnings. FIIs have been big buyers of Indian equities, shopping for close to $22.5 billion worth of stocks so far in 2012thats the second largest amount ever bought in a year since they were allowed into India two decades ago. To their baskets they have added the shares of state-owned NMDC, which sold 10% of its equity last week, and now Bharti Infratel.
Indeed, that the the quota reserved for institutional investors in the Infratel IPO was subscribed nearly three times is a big vote of confidence both for the India story as also the Bharti group.The Infratel IPO, priced in the a band of R210-240 per share, was valued more or less in line with its global peers38-44 times FY14 PEbut as analysts have pointed out, the competitors are better off when it comes to the economics of the business. So Bharti Infratels tenancy ratio of 1.8 times is lower than the 2.4 times enjoyed by international peers and moreover, its ebitda margins too are lower at 58% compared with those of global towercos at 70%. Given this, investors must be betting on the growth potential in the Indian market which they believe the towerco can cash in on. If retail investors by and large stayed away from the Infratel IPO it was possibly because the broking fraternity wasnt promising them immediate gains on listing as they may have for the IPOs of CARE and PC Jewellers. But even otherwise small investors dont seem overly interested in equities right now; data from AMFI shows that equity schemes of mutual funds saw an outflow for the sixth straight month in November taking the net outflows for the year so far to just under R13,000 crore. However, some attractively valued stocks may re-kindle their appetite for stocks and the government would do well to leave enough money on the table for investors when it sells shares of PSUs in the next few months. Valuing stocks reasonably should ensure the government doesnt need to mobilise support from either LIC or other state-owned institutions to get the issues subscribed. The NMDC stake sale went off fairly well, fetching the government close to R6,000 crore, but the disinvestment target of R30,000 crore is still far off. Just as Mittal has, the government too should quickly cash in on the mood in the markets.