Spice Communications: Nothing spicy about it

Spice Communications Public Issue Open : June 25, 2007 to June 27, 2007 Public Issue Price: Rs. 41/- to Rs. 46/- Per Equity Share

Spice has been in operation for over 10 years now (inception 1997) and is yet to turn PAT (profit after tax)-positive. The balance-sheet shows accumulated losses of over Rs 684 crore as of December 2006. Other regional players such as Aircel and Idea fare better on the above parameters. Aircel, Bharti Airtel, and Idea, which also commenced mobile services in 1997-98, turned profitable within six-seven years and acquired a national footprint.

Second, trends in Spice's subscriber additions over the last year do not compare favourably to competition. It has only managed to add about 82,000 subscribers a month in Punjab and Karnataka, while Airtel has managed to add nearly 2.5 lakh subscribers per month. BSNL and Hutch have added more than a lakh subscribers a month over the past year in these two circles. Spice ranks fifth among the six mobile service operators in Karnataka, but is better-placed in Punjab, where it is second in terms of subscriber numbers.

Third, a substantial portion of this IPO is to go towards part-debt repayment, vendor payment and licence fees to commence NLD and ILD services. Though this would reduce interest costs, the company may be left with little to be deployed in a national rollout of mobile services

Valuation

At the upper end of the price band, the offer values Spice at a substantial discount (40-45 per cent) to Idea Cellular on an Enterprise Value/subscriber basis

Recent reports also indicate that the Idea-Spice merger has been called off on account of disagreement over higher valuations.

The company is not a growth story as it is neither capable of growing organically nor inorganically in a significant way. Ultimately, it will have to get itself taken over by a strong player. That’s the only thing that can add spice to its share price.

What ohers are saying?

Moneycontrol - 4 star Hindu businessline - Avoid

ET Investor's Guide - Avoid(2 Star)