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Punj Lloyd Ltd Neutral
PUJL.BO, PUNJ IN
Bids for stake in a telecom company- Negative
• Submits bid for 30% stake in Bharti Hexacom: Punj Lloyd and Bharti
Airtel (BHARTI IN, covered by India telecom analyst Malvika Gupta)
have submitted bids to buy out govt. owned Telecom Consultants of
India's (TCIL) 30% stake in Bharti Hexacom. Bharti Airtel owns the
balance 70% in Hexacom and has the right of first refusal to TCIL’s
stake, as per Economic Times.
• About Bharti Hexacom: Bharti Airtel’s operations in six north-eastern
states (excluding Assam) and Rajasthan are through Bharti Hexacom.
The company had a turnover of Rs26.4B (+15.4% YoY), PAT of
Rs6.24B (+14.4% YoY) and net-worth of Rs21.3B in FY10. As of Oct-
10, Hexacom had 13.1MM subs. As per TRAI data, Sep-q blended
Average Revenue per user (ARPU) for Hexacom was ~Rs188- a 13.76%
discount to Bharti Airtel’s blended ARPU (Rs218).
• Deal worth upwards of Rs18B for 30% stake: As per ET, Rs18B is the
base price prescribed by the government appointed consultant. The
implied equity value for Hexacom is Rs60B, implying 9.6x FY10 PATappears
cheap given Bharti Airtel is trading at 14.9x FY12 EPS (J.P.
Morgan est.).
• Final deal base price may by higher in our view: An EGoM headed by
Finance Minister, will fix the final base price and the financial bids
submitted by the two companies will be opened only after this process is
completed. Last year, DoT decided that TCIL must exit Hexacom as it
was not earning any dividend on the stake held. Bharti Airtel was reinvesting
Hexacom’s earnings for internal growth.
• Rs18B+ non-core win for Punj Lloyd is negative in our view: The
minority stake will invite a steep holding company discount and will
likley not be EPS accretive. Future listing of Bharti Hexacom appears
unlikely as the parent Bharti Airtel is already listed. Sep-q debt-equity
ratio of Punj Lloyd was 1.47x (Net D/E of 1.05x, cash of Rs11.8B),
deterioration from 0.6x D/E in FY08. The operating performance needs
to stage a recovery; in 1HFY11 the company has reported a 40% YoY
topline de-growth and an adjusted loss of Rs67MM.
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