IPO Analysis: BK Modi is back in the deal street. However, this time they are not cashing out. Modis’ mobile value added services (VAS) company Cellebrum Technologies is going public which could well be the first step before Modis would look for buyers. Besides the public float, Lehman Brothers backed Cellebrum is also looking to sew up a pre IPO deal.

Modis had recently been in the news for selling out their mobile services business Spice Communications to AV Birla-led Idea Cellular and are also in negotiations with Sony Ericsson to sell out their mobile handset business Spice Mobiles. Incidentally, Modis have sold these two businesses as public firms. Cellebrum going for a public float could mean the promoters would look at harvesting their investments in the medium term given the lock-in period for promoters of IPO firms.


The Issue

According to the plan, the VAS firm will come up with an issue which would dilute upto 22.6 per cent equity. This would be through a mix of fresh issue of shares, some sell-off by promoters (the Modis) and private equity investor (Lehman Brothers). One of the affiliates of Lehman Brothers Securities’ hold 17.27 per cent of Cellebrum which would come down to 9.69 per cent post the IPO. The promoters who own 80 pert cent of Cellebrum would have close to 65.85 per cent post IPO.



The draft letter doesn’t give a hint of the pricing of the issue but VC Circle did some number crunching to arrive at an expected issue price. The total funds requirement as mentioned by draft letter is around Rs 170 crore plus expenses for general corporate purposes.

Assuming total funds to be raised by the firm (which would exclude the funds generated through the IPO by the existing investors by virtue of partially selling shares) to be marginally above this figure at Rs 180 crore and dividing by the fresh issue of shares to the public (6.9 million shares), we get an estimated issue price of around Rs 260 per share. This would imply an issue worth Rs 300 crore valuing the firm at around Rs 1,400 crore.


Who Gets What

If this is the actual price, the promoters will generate cash worth Rs 45 odd crore from partially selling their stake while Lehman Bros will get around Rs 110 crore. This would translate into little less than 200 per cent returns for Lehman in less than two years.

This is how: Lehman was allotted 2.57 million shares at a price of Rs 260.92 per share through a preferential allotment in November 2006. So they paid around Rs 67 crore for the shares. After a bonus issue completed last month, Lehman now holds around 7.4 million shares which at a price of Rs 260 is valued at around Rs 192 crore.



At Rs 1,400 crore the promoters are looking at an aggressive valuation for Cellebrum which had operating income of just Rs 73 crore for the nine months period ending December’07. For the period it had net profit (audited figures) of Rs 32 crore. This roughly gives the firm a trailing P/E multiple of around 35 which is pretty aggressive by current market conditions.

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