Spice Communications is entering the capital market on 25th June 2007 with a public issue of 11.31 crore equity shares of Rs.10 each in the band of Rs.41 to Rs.46 per share.
The company operates in Punjab and Karnataka circles, having combined market share of 14.49% in both the States. However, prime presence is in Punjab, where market share is at 23.92%. The company as on 31.03.2007 has 2.73 million subscribers of which 2.12 millions are billable subscribers, of this, 1.67 million subscribers are pre-paid, while 0.45 million are post paid.
The company has been passing through a bad financial phase and as on 31/12.06 had debt of Rs.1208 crores. Currently, the paid-up equity of the company is Rs.576.81 crores, which was increased after a pre-IPO placement made by the company on 05.06.2007 of 2.49 crore equity shares at Rs.45 per share. The accumulated losses on 31/12/2006 were placed at Rs.684 crores due to which net worth was negative at Rs.160.52 crores.
What needs to be looked into is the financials of the company over the last three years. For year ended 30th June 2005, topline was at Rs.644 crores while EBITDA was at Rs.203 crores. But for 12 months ended 30/06/2006, topline grew to Rs.680 crores while EBITDA fell to Rs.165 crores. Even for six months ending 31/12/2006, topline was at Rs.393 crores while EBITDA was at Rs.93 crores.
While all other telecom service providers, especially private sector players are recording a growth of 40 per cent and above every year, this company is either stagnant or showing a declining trend.
Post issue, equity of the company will rise to Rs.689.93 crores, which gives a market capitalisation of Rs.3200 crores, if calculated at the upper band of Rs.46. The EV of the company is about Rs.4400 crores, giving a valuation of about US$ 512 per billable subscriber.
On working financials, the company cannot post its bottomline in black due to huge interest and depreciation burden of over Rs.325 crores per annum. Infusion of fresh funds of about Rs.500 crores by proposed issue would help marginally. Hence, fundamentally it may not be a prudent investment.
However, it is definitely a take-over target, sooner or later. In the past, there was talk of Idea acquiring it by offering 12.5% stake in the merged entity, plus also assuming its debt. If that is taken as a benchmark, share of this company gets a valuation close to Rs.60- Rs.62. Expecting that to happen, one can consider investment in the stock from capital appreciation point of view.