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Three IPL Teams To Gain From New Auctions

19 January, 2010

Three listed corporates that own Indian Premier League (IPL) teams – Deccan Chronicle (Deccan Chargers), India Cements (Chennai Super Kings) and United Spirits (Bangalore Royal Challengers) – are set to gain from the two fresh team auctions process for IPL Season IV, the base price for which has  reportedly been fixed at $225 million. 

“These three companies will react positively as the market was giving their IPL teams a rough valuation of $150 mn till now,” said an analyst with a Mumbai-based broking house, which has also upgraded its rating for Deccan Chargers, which made a PAT of Rs 2 crore in the previous season.

“We used to value Deccan Chargers at $138 million (at 15x FY10E earnings) or Rs 26 per share of Deccan Chronicle. Our target price for Deccan Chronicle was Rs 158. However, after this announcement, now if we subscribe a valuation of $225 million to Deccan Chargers then the per share value of Deccan Chargers to Deccan Chronicle is Rs 43,” he added.

The broking house believes that the stock could go up once the official announcement comes from the BCCI, the cricket board. About seven out of the eight existing teams have agreed to induct two more teams in IPL.

Analysts believe that the $225 million base price fixed for this season is certainly on the higher side and that the new entrants tend to lose against the old team owners as they will have to dole out almost double of what was paid previously.  In the inaugural edition, the floor valuation for  teams was pegged at $50 million  and the minimum winning bid was for $67 million (Rajasthan Royals) and the highest one was for Mumbai Indians at $112 million.

In Tuesday’s player auction for the IPL Season III, West Indies all-rounder Kieron Pollard and New Zealand pacer Shane Bond emerged the most expensive players commanding a price of $750,000 (approximately Rs 3.42 crore).

The entity, engaged in serious money making out of sport which currently has eight team owners, will also see two fresh team auction process for IPL Season IV.

The names of the new bidders doing the rounds are Anil Ambani owned ADAG interested in the Ahmedabad franchise and Sahara Group boss Subroto Roy keen on the Kanpur team. The names of Hero Honda MD and CEO Pawan Munjal, Bharti Airtel and Bollywood stars like Salman Khan figure in the speculative list of new investors vying for the to be added teams.

“Most of these teams will be realistic in bidding. They have invested a lot and have not seen any significant returns. They are going to be extremely rational on what they are putting. The focus will be more on plugging the gaps than getting trophy players. Investments made behind the trophy players didn’t quite pay off. Most corporate personalities have started to appreciate this as a more serious affair of making money,” said Sanjay Jain of Taj Capital, a New Delhi-based boutique investment firm.

It is believed that what feeds into this high valuation is the fact that IPL is a proven format and that this time it will also be broadcasted in theatres. With two new entrants, the resource pool will now be divided among 10, and not just eight teams, which took all the financial risks of making IPL successful in 2008. About 70-80% ad inventory of Sony is already sold out, which is now busy selling its 10 seconds slots as high as Rs 3-4 lakh ahead of the IPL season.

Royal Challengers Bangalore paid a franchisee fee of $111.6 million; Rajasthan Royals owner Jaipur IPL Cricket Pvt. Ltd paid $67 million; Mumbai Indians owner Reliance Industries paid $111.9 million; Kings XI Punjab owners Preity Zinta, Ness Wadia and Mohit Burman paid $76 million; Kolkata Knight Riders owner Red Chillies Entertainment paid $75.09 million; Chennai Super Kings owner India Cements Ltd paid $91 million; Delhi DareDevils owner GMR Holdings paid $84 million; Deccan Chargers owner Deccan Chronicle Holdings Ltd paid $107.1 million.


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Three IPL Teams To Gain From New Auctions

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