Global Funds Keen on Bharti, Locals Divided

Anchor investors place orders worth over $1b against issue size of $800 m at . 230-240 apiece even as local brokers give mixed rating to IPO     Even as analysts are divided on Bharti Infratel's high-profile $800-million (. 4,350 crore) initial public offer that opens on Tuesday, long-term investors and hedge funds are keen to invest in the telecommunications tower unit of Bharti Airtel.  The company has already received demand for more than a billion dollars worth of shares at . 230- 240 apiece from investors and hedge funds seeking allotment under the anchor investor category, two persons familiar with the matter told ET. It is expected to allocate 15% of the issue size to anchor investors on Monday.  According to a top official familiar with the developments, large funds like Wellington, Morgan Stanley, Janchor, Columbia Wanger, Och-Ziff, Standard Pacific and Clough Capital, which are specialist tower infrastructure investors in the US, and some domestic mutual funds have evinced keen interest. "Since majority of the demand has come in between . 230 and . 240 per share, the allotment to the anchor investors is likely to near the upper end of the price band, which may also be the benchmark price for the IPO," said another person with direct knowledge of the issue, on condition of anonymity.  But the offer has drawn mixed reactions from brokerages. While Angel Broking and Ambit Capital advised clients to "avoid" it because of expensive valuations, Phillip Capital and Nirmal Bang have recommended investors to "subscribe" to the IPO. India Infoline, Religare and Emkay advised subscribing at the lower and middle end of the price band.  "If the IPO were priced at . 140-170 rather than . 210-240, it would have made more sense for investors to participate," Ambit Capital said in a note to clients. "These valuations appear expensive given the company's poorer economics compared to global tower companies and given the lack of short-term growth opportunities."  Bharti Infratel 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% revenue and EBITDA (earnings before interest, taxes, depreciation and amortisation) CAGR over FY2010-12. In terms of valuation, the current IPO price band implies a June 2012 annualised P/E (price to earnings) of 45-53x, and P/BV (price to book value) of 2.7-3.0x. "We recommend 'avoid' to the issue on account of its premium valuations," said Angel Broking in a report. Some of the concerns raised by the brokers were overcapacity in the industry, low revenue growth and an increase in competition from BSNL and Power Grid Corporation. However, Phillip Capital said it values the company much higher than the IPO price band, at . 279 a share. "We recommend subscribing to this IPO as we find the telecom passive infrastructure services business to be a low risk business backed by strong cash flow visibility with a potential for significant RoE (return on equity) unlocking and, thus, return to shareholders," it said in a note. The issue of about . 4,350 crore will be the largest share flotation in the country in the past two years and the first from the Bharti Group after a gap of 10 years. The last big-ticket IPO in the country was in October 2010, when state-run miner Coal India raised . 15,200 crore.  The IPO will result in 10% equity dilution in the company and reduce Bharti Airtel's stake in the subsidiary from 86.09% to 79.42%. The IPO comprises about 146 million new shares and a secondary sale of 42.67 million shares by Temasek Holdings, Goldman Sachs, Anadale and Nomura. The stake of the four private equity firms will drop to 10.58% from 13.91% at present after the IPO. Bharti Infratel plans to use three-fourths of the proceeds to add more towers, increase its market share and scout for acquisitions in India and overseas. The company holds 42% stake in Indus Towers, the world's biggest tower firm. Indus has a portfolio of 110,561 tower in 15 circles.  Bharti Infratel is the first tower company in India to tap the capital market. Reliance Infratel, led by Anil Ambani, earlier scrapped a planned public offer to raise about . 6,000 crore.