December 28, 2012 5:07 pm

Bharti Infratel shares drop after IPO

Shares in the Indian telecoms mast operator Bharti Infratel plummeted on their trading debut in Mumbai on Friday, falling by just under 13 per cent from the Rs220 listing price to Rs191.65 by the close of trading. By comparison, the Bombay Stock Exchange Sensex 30 Index was up more than 0.5 per cent on the day.

The fall on the company’s trading debut follows the successful initial public offering on December 17, which raised Rs41.7bn ($760m). The company is part of Bharti Airtel, India’s largest mobile phone operator by revenue, and its IPO was the largest in India since Coal India’s $3.4bn 2010 offering.

The company is the largest mast operator in India with a 38 per cent share of the market, and already operates 34,000 towers used by all three major Indian mobile phone operators. It has pledged to use the capital raised to invest in a further 5,000 towers.

With overall IPO volumes in India low compared with pre-2008 levels, and a number of other high-profile flotations failing spectacularly in the intervening period, Sunil Mittal, Bharti Infratel’s billionaire chief executive, hailed it at the time as “a strong endorsement”.

However, with the shares at Rs220 for institutional investors and Rs210 for retail investors, the offering was priced at the bottom of the company’s Rs210-Rs240 range, and had received limited interest from retail investors despite the discount.

Amit Anwani, an equity research analyst at Kantilal Chhaganlal Securities, said that expectations in the investment community were low before the start of trading. “Given the capital intensive nature of the industry, we felt the pricing was a little expensive.”

“In the roadshows [Bharti Infratel] stressed the opportunities for growth in 2G voice services and more penetration in the 3G and 4G spectrum – given that the range for 3G transmitters is lower, this will require more towers.”

But doubts have been raised over whether the growth in new mast rentals and 3G adoption will be sufficient to warrant the investment.

Ankita Somani, a telecoms analyst from the Mumbai-based brokerage Angel Broking, told the Financial Times that the company is expected to face difficulties generating substantial returns given overcapacity in the conventional mobile phone market. “A substantial increase in [mast] tenancy is not expected – tenancy in many urban areas is already 100 per cent.

“The only way to improve dramatically will be from increased data revenues. Growth in this area is picking up, and the expansion of 3G will lead to improvements, but is not fast enough.”

India’s mobile telecoms sector has boomed during the past decade, and with 900m mobile subscriptions it is the second largest in the world after China. However, revenue growth has slowed in recent years and price competition is fierce.

There is also regulatory uncertainty for the company to contend with. In February the Supreme Court revoked 122 licences awarded by a former telecoms minister under investigation for corruption. The re-auction of the spectrum in November flopped, with leading companies refusing to pay the high prices set by the government.

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