The implications of the lukewarm response to Bharti Infratel’s IPO

Aggressive pricing and challenging conditions in India mean the IPO tells us very little

Bharti Infratel wasn’t just an important IPO for the tower industry, with potential floats to follow from Viom Networks and Reliance Infratel – it was an important IPO for India as the country’s largest IPO for two years. However, complaints of aggressive pricing made it difficult to draw conclusions from the market’s lukewarm response to the IPO. Bharti Infratel raised $761m (41.7bn rupees) in the IPO, giving the company an initial valuation of $7.6bn, which had fallen 13% by December 28 to $6.6bn.

The aggressively priced IPO at 210 rupees per share suggested a valuation of $93.6k per tower, which seems toppy compared to the 2010 tower deals between GTL Infrastructure and Aircel at $84.4k per tower and the $78.9k per tower paid by ATC to Essar Telecom – usual qualifiers requiring familiarity of full terms of the deal notwithstanding. Bharti Infratel’s pricing may reflect the realisation of an exit for some existing investors – although when KKR invested $250m in 2008, it valued Bharti Infratel at $12.5bn.

Bharti Infratel’s share price rallied through January, trading in the low 200’s and climbing to a high of 220 rupees, before settling back to 190 rupees at time of press.

Is Infratel’s valuation symptomatic of investor coolness toward the tower industry, or toward the India economy? According to the Wall Street Journal “Bharti Infratel’s flop on listing shows the fragility of the (Indian) market… The issue price also made the IPO expensive compared to other infrastructure companies trading on India’s exchanges, some analysts said.”

Firstpost agreed: “The primary market in India is teetering. Retail investors are yet to get their confidence back. Bharti Infratel’s almost-flop IPO is another proof of this… Bharti Infratel is priced more than 48 times its earnings even at the lower end of the price band. If the company had expected that investors will make a beeline for the shares at this valuation, it is in a fool’s paradise. Given the turbulent phase the telecom sector in India is going through, it would have been a surprise if the issue elicited a better response.”

An analysis of the subscriptions could be interpreted more positively. While retail investors were reported to have taken only 20% of their allocation, the appetite of tower industry-savvy institutional investors carried demand to 1.3 times the shares on offer, underwhelming but over the finish line nonetheless. Indeed, some analysts suggested Bharti Infratel’s poor business fundamentals compared to international competitors, and Bharti’s focus on the challenging domestic Indian market, may have suppressed demand.

Bharti Infratel operates 34,220 towers, and plans to use funds raised from the IPO for dividends and to invest in a further 5,000 towers


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