17 June 2019
TP: INR400 (+16%)
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Bharti announces Africa IPO price band
Surprisingly at steep discount to pre-IPO value
Bharti Airtel (BHARTI) has set a price band of USD1.0-1.3 (GBP0.8-1.0) for its Africa
business IPO. This will lead to post issue equity dilution of 16-19%, leaving BHARTI's
stake at 55-57%.
The announced price band comes as a surprise, given that it is at 15-32% discount to
the pre-IPO price at an equity/enterprise value of USD4.7b/USD7.9b at the higher
end of the range.
At the FY21 EBITDA estimate of USD1.6b (10% CAGR over FY19-21), the IPO is priced
at EV/EBITDA of 4.4x/4.8x at the lower/higher end of the band, much lower than our
estimate of 7x.
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
1762.5 / 25.2
366 / 254
Contours of Africa IPO
BHARTI has announced the price range of its Africa business IPO at USD1.0-1.3
(GBP0.8-1.0). At this price, the company will issue 595m-744m shares, looking to
raise about USD750m (i.e. INR52.5b). This should lead to post issue dilution of 16%-
19.4%, leaving BHARTI’s stake at 55.2%-57.4%.
Financials Snapshot (INR b)
2019 2020E 2021E
807.8 839.0 920.8
258.2 265.1 308.5
-35.0 -27.7 -11.5
EPS Gr. (%)
178.7 182.5 180.3
Shareholding pattern (%)
Mar-19 Dec-18 Mar-18
FII Includes depository receipts
Re-pricing at steep discount to pre-IPO value
The price came as a surprise, as it is at 15-32% discount to the pre-IPO price of
USD1.48. The pre-IPO first round was announced last fiscal in Oct’18 (by six global
investors), and since then the Africa business performance has improved (EBITDA
up 23% YoY in 4QFY19). The second round too was conducted just five months
back in Jan’19, when the company raised USD200m via the Qatar Investment
Authority Fund at a similar pricing and 4.35% dilution. This now values BHARTI’s
Africa business at equity value/enterprise value of USD3.9b/USD7.1b at the lower
end of the band and USD4.7b/USD7.9b at the higher end of the band. The pre-IPO
value was at equity value/enterprise value of USD4.6b/USD8.1b – yet retaining
68.5% holding by BHARTI.
Valuation and view
Given that typically pre-IPO happens at a discount to the IPO price, we were
expecting the IPO price to be higher than that in the pre-IPO rounds. At FY21E
EBITDA of USD1.6b – factoring 10% CAGR over FY19-21, the IPO is priced at
EV/EBITDA of 4.4x/4.8x at the lower/higher end of the band, much lower than our
estimate of 7x. We have yet not adjusted our numbers but expect this to exert
pressure on the company’s valuation. We maintain our Buy rating with SOTP-based
target price of INR400.
Aliasgar Shakir-Research analyst
(Aliasgar.Shakir@motilaloswal.com); +91 022 6129 1565
Hafeez Patel-Research analyst
(Hafeez.Patel@motilaloswal.com); +91 22 6129 1568
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.