Led by Providence Partners, a leading US-based private equity player, three other leading funds, TA Associates, Citigroup and ChrysCapital, have together acquired 25 per cent stake in Idea Cellular, the country's fifth largest mobile company.
No financial details were available on the deal involving the four investors, which was confirmed by Bharat Banka, co-head of group finance in the Aditya Birla Group.
The stake sale is considered to be a precursor to the proposed initial public offer (IPO) of Idea Cellular, which has a subscriber base of more than 10 million. The company intends to raise Rs 2,000 crore through the IPO.
The company is expected to post revenues of $1 billion in the current financial year with an EBIDTA ( earnings before interest, depreciation, taxes and ammortisation) margin of about 35 per cent.
Providence Partners acquired around 15 per cent, while the other three together make up for 10 percent in the stake sale.
Based on the current market capitalisation of Bharti Airtel of Rs 100,435 crore, or $22 billion, the enterprise valuation of Idea Cellular should be around $4 to 4.5 billion or around Rs 20,000 crore, market analysts said.
After its quarterly results on Friday, the market capitalisation of of Bharti Airtel increased by more than Rs 5,000 crore to cross the landmark of Rs one lakh crore.
Bharti Airtel’s current market capitalisation is 14.3 times of its estimated EBIDTA for current financial year of 2006-07. Bharti Airtel’s current year EBIDTA is expected to be around Rs 7,000 crore. In the fist half of the current year, it has reported an EBIDTA of Rs 3,200 crore.
Taking this as benchmark, on a conservative basis, Idea, which is expected to have an EBIDTA margin of around 35 per cent, should have a total valuation of around $4.5 billion.
After adjusting for debt amounting to $1.0 billion, Idea's equity valuation would be $3.5 billion. “At this price, Idea is valued at 12 times to its potential earning of 2006-07,” an investment banker said.
After the secondary sale to the private equity firms, the A.V. Birla’s group’s holding will come down to 73 per cent from the current level of 98 per cent.
Simultaneously, Idea Cellular’s proposed IPO of Rs 2,000 crore is expected to be completed before March 2007. The company has envisaged a capital expenditure of around Rs 7,000 crore over the next three years.
This will be funded through the IPO proceeds of Rs 2,000 crore, internal accruals and loans. The company has already initiated the process of appointing advisors to the issue.