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Tuesday, October 27, 2009

DEN Networks IPO - Analysis & Advice

RR Financial Consultants has come out with a report on the IPO (initial public offering) of DEN Networks, which opened for subscription. The issue is of up to 20,000,000 equity shares of Rs 10 each with a price band of Rs 195-205 per share, which will close on October 30, 2009.

The research firm recommended avoiding the IPO in anticipation of immediate listing gains, however, said investors who have time horizon of two to three years could subscribe for the issue.

Valuation
The EV/Sales multiple is at a premium to Wire and Wireless, the only other listed peer, while the EV/EBITDA multiple is at a discount. Den is a cable network operator with a limited two year operational history. For the quarter ended on June, the company posted a profit of Rs 3.2 crore, while for the year ended on March 2009; the company posted a loss Rs 15 crore.

Outlook
Investors can avoid the initial public offering of Den Networks considering the inherent challenges that the cable distribution industry faces in driving revenues and competition from alternative platforms such as DTH, that are making rapid strides. The cable industry may face several scalability hurdles, with the limited growth in television households, the pace conversion of analogue networks to digital ones and within that conversion of free-to-air viewers to pay-channel mode, all subject to uncertainty. A report from TRAI gives out the fact that only a little over eight lakh set-top boxes have been installed in the four metros put together as of June 2009.

Conclusion
Though the telecom regulator mandating conditional access in 55 cities across the country by 2011 is a positive for the company, there may still be limited scope for growth in subscriber’s industry challenges. We recommend avoiding the IPO in anticipation of immediate listing gains however investors who have time horizon of two to three years can subscribe for the issue.

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