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Hughes Tele: The valuation game

Sep 5, 2000

Hughes IPO is on the road. In fact, today is the last day for submission of bids for the book build portion. The floor price for the share is Rs 12 indicating that the company believes it shares to be valued for at least the above price. At what price the market values the share will be known after the close of the book build portion when the company announces the issue price for the fixed price portion. But the question remains at what price will the market value the shares?

Rough estimates on valuation based on market comparables (comparative valuation) reveals the following numbers.

Subscriber base
Services Bharti* Hughes
Cellular 338,000 -
Basic 120,000 27,000
Internet 100,000 -
Subscribers 558,000 27,000

Recently, Singapore Telecom acquired an aggregate stake of 20% in Bharti Telecom and Bharti Televentures. It purchased the stake for $400 m or Rs 18.4 bn. This gives the Bharti combine a market value of Rs 92 bn.

(m) Bharti * Hughes Tele
Mkt Value/Sub (Rs) 164,875 164,874**
No. of Subs 0.558 0.027
Market Value 92,000 4,452
No. of shares - 1,553***
Mkt Value/Share (Rs) - 3
* includes Bharti Telecom and Bhari Televentures
** based on comparable valuations
*** post IPO

The exercise gives Hughes a market value of Rs 4,442 m. The company post IPO will have an equity capital of Rs 15.53 bn with 1,553 m shares. This results in a market price of Rs 3 per share.

This is a comparative exercise and may not reflect all the variables for determining the correct value of the Hughes IPO.

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