Smart Cricket

Rajasthan Royals won the DLF IPL cricket tournament is old story. Now the champions are going public – not with their fame, with private placement and further on the stock markets with an IPO!

In January this year, Rajasthan Royals, the only foreign-owned team (investors include Lachlan Murdoch, son of Rupert Murdoch) among the eight IPL franchisees, made a bid for $67 million for the team, the lowest among all the DLF IPL teams. Led by Shane Warne, the Royals won the tournament. Reportedly the only team that is in the black — first-year expenses were estimated at $20 million and revenues are in the same range.

Wonder what other franchisees that are still licking wounds feel as they read this…

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For some, a bubble is forever

This one looks like a googly. What to make of this?

An Indian company [Great Easter Energy Corporation (GEEC) promoted by Y.K.Modi – that is into CNG exploration and production] listed in AIM of LSE in London is now seeking to issue shares in the Indian market. Reportedly a Rs.10 billion issue, 50% of which is an offer for sale by existing GDR holders (they call it `sponsored’ issue quite funnily - even as the GDR holders are seeking to exit the venture!). About Rs.5 billion will accrue to the company out of the issue proceeds (and remaining Rs.5 billion to exiting shareholders). GEEC currently has accumulated losses of Rs.216.37 million in its balance sheet.

Net increase in paid up capital will be just Rs.50 million or so. That means a fat premium of close to Rs.199/- per Re.1/- share in a down market even as the company is barely into revenues (Rs.49.39 million for FY 2007-08). The company has initially raised $20 million in December 2005 (1$=Rs.44 then) – that means the investors are in a hurry to recoup 5.68x their initial investment. Begs the question - why the hurry?

It will be fun to watch how this rip-off IPO is rated by the agencies and how it gets palmed off to investors – both suspecting and unsuspecting. But the real fun will be to watch its outcome, that will be an indicator of the level of investor gullibility ;-)

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Taking BPO Public

When is the right time for a BPO to go Public?

The question is troubling many Indian BPOs wanting to get listed. The industry seems divided. Suggested BPO critical mass range between $100-250 million in revenues to get listed in NASDAQ and a modest $25m is enough to get listed in India's BSE.

Currently the BPO industry is operating at 10-12 per cent EBITDA margins and command a P/E multiple of 18-25. KPOs have higher EBITDA margins of about 15 per cent. Many BPOs are wary of getting listed on BSE as the industry knowledge is poor.

A BPO sees some merit in going public. Besides the fact that investors get to monetize their stake or having cash reserves to buyout other BPO assets (like in the case of Genpact), it will also have a better image since it will be subjected to frequent compliance / process audits and its affairs are open to shareholder scrutiny.

Unlike an IT company, setting up a BPO is capital intensive. Experts say it takes about $6,000 per seat to set up a BPO while a software company can be set up at an investment of about $2,300 per seat. Thus unless you have over 2,000 employees and are profitable, one should not even think of an IPO. While private equity is always an option, an IPO can offer 10 times the valuation.

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Hamlet's soliloqy comes to mind... To be, or not to be (public)...!

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