'Robi is a dream IPO for the current situation'
The overwhelming clamour to secure a piece of Robi’s stock sale, which is the biggest ever in Bangladesh’s bourse’s history, is bound to leave one wondering what the fuss is all about.
Its numbers, after all, pale in comparison to Grameenphone’s and it is only from last year that the operator has started to be in the black consistently.
“Robi is a dream IPO for the current situation,” said Mohammed Rahmat Pasha, chief executive officer of UCB Capital Management.
At a time when the economy when the economy is suffering, Robi is coming to market with a mammoth IPO, he said.
And it is coming with no premium, so investors will get to snap up a slice of a multinational company that maintains good governance and very good future plans at Tk 10 each.
Robi will offload 52.4 crore shares, which is about 10 per cent of its stakes, in lots of 500.
Since the stock market regulator gave the nod to the listing, which will be the biggest yet in the bourse’s history, on September 23, about 1.20 lakh beneficiary owner’s (BO) accounts, which is a must to buy shares, were opened, according to data from the Central Depository Bangladesh Ltd (CDBL).
In the preceding two months, about 63,560 BO accounts were opened. Market operators said the spike in BO accounts is to snap up Robi shares.
“An ideal investor does not invest based on the current financial statement -- they invest based on the future plan and earnings of the company and Robi's future plans are very good,” Pasha added.
The excitement is simply because Robi is a multinational company and the market needs all the multinational companies that it can get, said Sayedur Rahman, president of the Bangladesh Merchant Bankers' Association.
Robi Axiata is a joint venture between Malaysia’s Axiata Group and India’s Bharti Airtel. Axiata holds 68.7 per cent controlling stake in the entity and Bharti holds the remaining 31.3 per cent.
It is widely believed that multinational companies have better corporate governance, operational efficiency and draw the best talent.
“We are excited by the IPO because of its growth potential -- we expect it to boost investor confidence,” said Ahsanur Rahman Bappi, chief executive officer of BRAC EPL Stock Brokerage.
However, investors are concerned about its low profit vis-à-vis Grameenphone.
In the first six months of this year, Robi logged in profit of Tk 77.2 crore and Grameenphone about Tk 1,800 crore. Robi has yet to unveil its earnings from the third quarter; Grameenphone has posted a profit of Tk 890 crore.
Robi though appears to be less efficient than Grameenphone.
“Although Robi has a decent top line, the numbers drop significantly when it comes to the bottom line due to inefficiency in managing expenses,” said a recent report of Brac-EPL.
Its asset turnover is half of Grameenphone’s without any trend in improvement in efficiency.
Its net property, plant and equipment (PPE)/site is Tk 84 lakh, which is more than double of Grameenphone’s net PPE/site of Tk 38 lakh.
“Therefore, it seems like Robi is inefficient in utilising its funds to construct sites for its subscribers,” the report said.
Robi has a much lower operating margin than that of Grameenphone due to the higher cost of revenue, maintenance and depreciation expenses.
Moreover, due to a high debt number, the interest and lease payments pull down the earnings as well, the report added.
Bappi though is optimistic.
“We hope Robi’s profit will grow soon due to the company’s future plan being very smart,” he added.
Robi intends to use 98.5 per cent of the Tk 523.8 crore IPO proceeds for network expansion, especially 4G, which it already has the widest coverage amongst the operators.
At present, the carrier has 11,922 sites with 91 per cent 3G coverage and 93 per cent 4G coverage.
It has spectrum of 9MHz in the 900 MHz band, 17.4 MHz in 1800 MHz band, and 10 MHz in 2100 MHz band.
The country’s second-largest operator needs to renew 1.6 MHz of spectrum in 900 MHz band and 10 MHz of spectrum in 1800 MHz band in December, with the exact cost of the renewal still uncertain.
It is expected that the cost of the renewal may be close to Tk 3,000 crore, said the Brac-EPL study.
The IPO fund cannot be utilised for this purpose, meaning Robi’s debt-equity ratio of 90.5 per cent as of 2019 may increase further in the upcoming years, it said. Grameenphone’s debt-equity ratio was 62 per cent in 2019.
It has a higher average GB per user per month of 2.7 compared with Grameenphone’s 2.5 GB.
“Robi brands itself as having a 4.5G speed in Dhaka. As the growth of the industry will be primarily driven by data, Robi’s subscribers, who are prone to higher data usage, may generate a much higher value in the future,” said the Brac-EPL study.
Bangladesh is poised to witness substantial mobile subscriber growth due to a young population with a median age of 27 years and a unique mobile subscriber penetration of only 54 per cent in 2019, according to the Global System for Mobile Communications, an industry organisation that represents the interests of mobile network operators worldwide.
Moreover, due to technological advancements, feature phones and smartphones are getting cheaper, which will allow faster enrolment of the population who are not under the mobile coverage yet.
As of 2019, Bangladesh has a mobile internet penetration of 25 per cent and smartphone penetration of 40 per cent, according to the GSMA.
“A young population and affordable smartphones will boost unprecedented data subscriber growth in the upcoming years. Along with that, data usage will grow at a significant rate as well,” the Brac-EPL study said.
With data price getting cheaper and an explosion of social media usage (active social media penetration is only 22 per cent in Bangladesh as of Jan, according to Datareportal), data usage will get a boost.
“Robi, being second-largest player in the market, will ride the wave of digitalisation and grow with the industry,” the study added.