India’s eighth largest GSM operator offering services in Punjab and Karnataka, Spice Communications, is coming out of its IPO from June 25-27 with a price band of Rs.41-46 per share. It becomes the fifth telecom company to be listed after Bharti Airtel, Idea Cellular, Reliance Communications and Tata Tele (Mah).
Spice Tele intends to raise Rs 520 crore by issuing 11.31 crore equity shares comprising 16.39% of capital. The company also did a pre-IPO placement of 2.48 crore shares at Rs.45 each to Lehman Brothers and Sinnaker Investments.
Post IPO, Telekom Malaysia stake would go down to 39%, while Modi group chairman B K Modi would own 41% stake and rest 20% with retail public, and the company would be valued at Rs.3,000 crore.
The IPO proceeds shall be used to repay debt and for expansion into NLD and ILD services to increase its marketshare.
But the big question is whether to invest in the IPO considering that India is the world’s fastest growing telecom market and recently concluded Idea Cellular IPO was oversubscribed 57 times.
Spice is present in only 2 circles, Punjab where it is the second largest and Karnataka where it is the fifth largest operator. Even with the IPO proceeds, it would still be a small player since the money is mostly to repay debt and expanding services rather than venturing into new circles.
Spice Tele had an accumulated loss of Rs.684.35 crore and a negative networth of Rs.160.52 crore. So to invest in a negative networth company is hardly a good proposition unless it offers a tremendous growth and value opportunity.
The only rider seems to be the consolidation in the industry. As once the company gets listed, it becomes a key takeover target and the market will give the true value to the company thus making it easy for the acquirer to ascertain a fair value to the acquisition.