|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Spice
Communications
Small player trying to survive Promoted by Dilip Modi of the B K Modi group, Spice Communications provides cellular services in Punjab and Karnataka. Telekom Malaysia will hold a 39.2% equity stake post-issue compared with 40.8% of the Modi group. The company was the second largest cellular services provider in Punjab and the fifth largest cellular services provider in Karnataka, measured by the total number of subscribers with a combined market share of 14.49% in these two states (Punjab: 23.9% and Karnataka: 7.5%) end March 2007. The subscriber base was 3 million (2.05 million in Punjab and 0.95 million in Karnataka) with network coverage of 537 towns in Punjab, covering approximately 55% of the state population, and 229 towns in Karnataka, covering 33% of the state population end May 2007. Spice Communications has pending applications for licences to provide cellular services in additional 21 circles throughout India. The company was recently awarded a national long distance (NLD) licence and international long distance (ILD) licence by the Department of Telecommunications and it intends to initially set up base infrastructure for a capacity of 30 million minutes per month across 15 locations in India. The current initial public offering (IPO) is to raise Rs 464 crore at the lower band (Rs 41) and Rs 520 crore at the upper band (Rs 46). The net proceeds from the issue are to be used for part repayment of long-term debt, for payment of NLD and ILD licence fee, for meeting related capital expenditures to set up base infrastructure for NLD/ILD amounting to Rs 63.60 crore, for paying vendor(s) for network equipment and other capital expenditure amounting to Rs 177.63 crore, and for general corporate purpose and public issue expenses. Spice Communications has issued 2.49 crore of equity shares at a price of Rs 45 to certain investors pre-IPO and raised Rs 111.93 crore. Strengths
Weaknesses
Valuation Spice Communication has made net losses in the six months ended December 2006 and year ended June 2006. However, it has been making profit at the cash level. The company will not be listed on NSE as it does not meet the financial track record prescribed by NSE for new listings. At the price band of Rs 41 - Rs 46, the EV/EBITDA works out to 20.9 22.8, respectively. While Bharti Airtel, the largest integrated player in the sector with a pan-India presence in GSM (in all 23 circles), trades at EV/EBITDA of 21.5, and Reliance Communication, with CDMA presence in 21 out of 23 circles and GSM presence in eight circles constituting a pan-India presence in all the 23 circles, is trading at EV/EBITDA of 18.4. Idea Cellular, with operations in 11 circles, trades at EV/EBITDA of 22.6. On the basis of FY 2007 consolidated revenue, the market capitalisation to sales works out to 8.5 for Bharti Airtel, 7.3 for Reliance Communication, 7 for Idea Cellular, and 3.4 for Tata Teleservices (Maharashtra). It is 3.7-4.1 for Spice Communications. The EV per wireless subscriber for Bharti Airtel, Reliance Communication and Idea Cellular is about Rs 41102, Rs 35382 and Rs 23434, respectively. For Spice Communication, it is Rs 13887 Rs 15113. But one should also factor in that Spice Communications is operating in only two circles and has a low subscriber base/market share. The blended average revenue per user (ARPU) of Spice Communication stood at about Rs 370 in the six months ended December 2006 against Rs 427 for Bharti Airtel, Rs 338 for Idea cellular and Rs 328 for Reliance Communication in the quarter ended December 2006. Spice Communication is one of the suitable candidates for takeover. Earlier attempts have reportedly failed due to pricing issues. The company is not a growth story as it is neither capable of growing organically nor inorganically in a significant way. Ultimately, it will have to get itself taken over by a strong player. Thats the only thing that can add spice to its share price.
|