JOJI THOMAS PHILIP & DEEPALI GUPTA NEW DELHI | MUMBAI
Telecom tower company Viom Networks has made a . 7,500-crore offer to buy out its competitor GTL Infrastructure, two executives directly aware of the development told ET. Talks are still on as there is a valuation mismatch — GTL promoters are learnt to be eyeing valuations of over . 10,500 crore (excluding its debt), the executives quoted above said. They also added that earlier round of talks, held during first week of July, had not made any headway as Viom was not keen on the merger option being proposed by bankers. Viom had made this offer to GTL last week. My Comments:
SBI Capital Markets is advising Global Group, the parent company of GTL and GTL Infrastructure, on the possible sellout or stake dilution. Viom’s CEO Arun Kapoor declined to comment when asked specifically if the company had made a . 7,500-crore offer to GTL. Viom is 53% controlled by the Tatas. Kolkatabased Kanorias, founders of Srei, have 27% stake and foreign institutional investors hold the remaining 20%. The founder and promoter of Global Group Manoj Tirodkar refused to comment, but the company, in an e-mail reply to an ET query, said: “There are many aspirants who want to acquire our assets or partner with us. Viom has not entered into any formal discussion with us and hence the question of . 7,500 crore or . 10,500 crore being the offer value does not arise. The fact that players like Viom continue to approach and show their interest in GTL Infra is a tribute to the business that we have built.”
GTL’s debt is estimated to be around . 14,000 crore. The executives quoted above also clarified that Viom’s offer to GTL was subject to two conditions. First, the Global Group must reduce its debt in its tower arms to about . 7,500 crore post the restructuring. Viom is of the view that GTL cannot sustain a higher debt based on its current cash flows. Next, Viom has also said that its offer is valid only for a limited period as it shares the view that its competitor’s valuations will erode further if the company fails to meet its service level agreements with respect to its clients, they added.
But an executive close to GTL admitted that Viom had made ‘several offers’ while adding that a deal would be possible only if the offer was ‘valuable to the company and its lenders’. “GTL has also been approached by two private equity players and other options are available. Post the restructuring, GTL has already said that it can service debt of . 9,500 crore from its current cash flows,” this executive added. Since June 17, both GTL and GTL Infrastructure stocks have seen panic selling. The combined market cap of GTL and GTL Infra was . 6,154.89 crore as on June 17, 2011, but this has crashed by 67.35% to . 2009.6 crore as on July 27, 2011, wiping out about . 4,145.29 crore of investors’ wealth. GTL is also undergoing a corporate debt restructuring, which is slated to reduce its debt to around . 10,000 crore. Both GTL and GTL Infrastructure have roped in SBI Capital Markets as the advisor for their restructuring exercise and also to dispel investor concerns following the recent crash in its markets.
I read the above news in ET today.
Now let us do the analysis.
GTL Infra Mcap is Rs 1316 as of now and GTL Ltd Mcap is Rs 663 cr at the current market price.
I remember , someone asked me that whether GTL is a buy or not at the level then prevailing at Rs 140 as it has come down from Rs 462 and I very clearly said that even at Rs 40 I will not buy GTL Ltd.Those who went ahead and bought GTL Ltd must have made a loss.
Remember, when stock starts the downward journey, it keep on falling and perticularly when there is negative news with the fall it invariably fell way below our expectation.
Market always do like that.People keeps on thinking how much more it can fall and it keeps on going down and down defying all logic and when I replied to that query that was what in my mind.At that time who asked me this query, should have not liked my opinion but ultimately I was right.There is nothing to get dejected about it nor I am writing to prove myself.
Same thing happened with Satyam Computer and when it went below 20 it was time to buy but at that time no one listened to me.
Coming back to the above news, as I wrote the Mcap of GTL Infra is Rs 1316 cr and GTL Ltd is
Rs 663 cr and if we add both Mcap then also still it comes to around Rs 2000 cr.
Now VIOM is offering Rs 7500 for GTL Infra stake but has certain condition like trimming down the debt from Rs 14,000 cr to half at Rs 7500 cr.
In the above text it is written that the debt can be reduced to Rs 10k cr but Mr.Manoj Tirodkar is asking for more valuation of Rs 10,000 cr instead of Rs 7500 cr and I think that will be difficult to be achieved in the present scenario.
So a Co having a Mcap of Rs 1316 cr is fetching Rs 7500 cr and hence this makes a deal worth over 5 times then present valuation barring reducing the debt to half.
Let us see how market reacts on this news and how much GTL Infra and GTL Ltd moves up.
Well, these type of picks are rather good for MF managers who are happy with 30-40% return in a year or two.It may also happen that as I wrote the offer from VIOM of 5 times value then the present Mcap can give 100% return within a year or even more in 2 yrs as well.It all depends upon how the market is going to play the game.We can just take a call as per our comfort but looks like GTL Infra and GTL Ltd looks now on a healthy trajectory due to the asset of Telecome Towers it possess.
I would like to mention that SREI Infra is inching slowly and steadily up and is at Rs 48.The stock has gained Rs 10 from Rs 38 to Rs 48 when the market trend is down.
I have already wrote my liking for SREI Infra here time and again.