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Axiata Group Bhd - Eyeing another Indian company?

News Bloomberg reported that Axiata and Carlyle Group LP are among the bidders for a majority stake in India’s Viom Networks Ltd, which owns cellular towers in the country, said sources with knowledge of the matter.

Gurgaon-based Viom Networks could receive an equity valuation of as much as 80b rupees (USD1.3b) in a sale, two of the sources said. Tata Teleservices may still hold a stake in Viom Networks after the sale, while some of its private-equity investors will exit.

Tata Teleservices has a 54% stake in the JV, while SREI Group holds 18.5%. The remaining is owned by a group of financial investors, including IDFC Private Equity, SBI Macquarie, Oman Investment Fund and GIC of Singapore, according to its website.

Viom Networks is one of the country’s largest independent telecom tower owners with over 90k tenancies on 40k towers across India. Its tenancy ratio, at 2.3x, is higher than the industry average.

Comments Axiata has a cash and bank balances of RM6.4b with a gross debt to EBITDA ratio of 1.88x (<2.0-2.2x optimal capital structure level) in end-FY13, suggesting room to gear up, if needed. We are neutral on this news as it is still very much at the preliminary stage.

According to Viom Network’s latest full-year results, its PAT stands at about Rs80 crore (or USD13.2m) on a revenue of Rs5,000 crore. Its EBITDA stood at Rs1,900 crore in FY13.

We understand that Viom Networks is looking at fresh funding to support its entry into Myanmar, besides expanding its Pan-Indian tower network. It also plans to explore tower management opportunities in Indonesia and Bangladesh. The group intends to spend about Rs5,000 crore of capex over the next six years, according to the recent news reported.

Meanwhile, earlier news had also reported that Viom Networks is eyeing to list in New York, London or Singapore and could be valued at close to USD4b, based on 14-16x EBITDA, according to bankers.

Outlook Axiata is expecting its topline to grow by 10.1% YoY in FY14 with an annual EBITDA growth of 1.8% YoY, thus suggesting that the group’s EBITDA margin would be squeezed.

Forecast We leave our earnings estimates unchanged pending the upcoming result release.

Rating MAINTAIN MARKET PERFORM

Valuation Maintained our Axiata TP at RM6.57, based on a targeted FY14 EV/forward EBITDA of 9.0x (+1.0 SD above its mean).

Risks Regulation and currency risks in its overseas ventures

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