The Bharti Infratel initial public offer (IPO) may have received strong anchor investor participation a day before the opening of the public issue on Tuesday, but many domestic brokerage houses and experts have expressed mixed reaction to the R4,000-crore issue.
According to a poll among 15 domestic brokerages, most analysts said the issue was fairly priced and recommended clients to subscribe at the lower end of the price band. According to stock exchange data, the IPO was subscribed 0.15 times on the opening day of the issue.
However, some analysts said the issue, which is likely to list at 10-12x FY14 EV/Ebitda, should have been priced at a discount to its global peers given low barriers to entry in the industry and oversupply in domestic tower capacity. “We recommend ‘subscribe’ to Bharti Infratel IPO. At the price band of Bharti Infratel, the company is asking for valuation, which is a steep discount to its global peers,” said a Prabhudas Lilladher note.
Nirmal Bang Institutional Equities also sent a ‘subscribe’ recommendation and said that based on the discounted cash flow (DCF) calculations, the fair value of BIL works out to R278, implying a 32% upside from the lower end and a 16% upside from the upper end of the IPO price band.
“Bharti Infratel's blue-chip client base provides confidence on revenue and cash flow predictability. While the current return on equity (RoE) is low at 5.3%, we expect lower interest burden and higher margins to boost it, going forward,” stated the Nirmal Bang report.
On the contrary, Ambit Capital and Angel Broking were among the brokerages that did not recommend subscribing to the Bharti Infratel issue, citing higher valuations.
“We believe Bharti Infratel'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...” said Ambit Capital's analysts Ankur Rudra, Parita Ashar, and Utsav Mehta in their recommendation report.