Hughes IPO's fixed price portion may do well

NetScribes/Salil Panchal

After a successful first round, it's time to test the market again for Hughes Tele.com. Retail interest is expected to be strong for the offering, which opens on September 20 with the fixed price IPO. The fixed price IPO consists of 62.4 million equity shares at a fixed price of Rs 12 aggregating Rs 742.2 million.

Hughes Tele.com recently concluded the book-building portion of its IPO successfully, garnering over Rs 11 billion, with the issue being oversubscribed 1.33 times. The book-built portion drew interest from all the major domestic institutions and foreign institutional investors.

With a strong track record (considering the previous Hughes Software issue), marketmen are of the view that retail interest for the offering would be strong. ``If one is looking at a 20 per cent premium for the Hughes offering, it appears to be a strong issue in current market conditions,'' Abhay Aima, head of equities, HDFC Bank, said.

It may be recalled that the Hughes Tele.com book-building issue was the largest telecom issue in the Indian market. Almost the entire 49 per cent equity reserved for the foreign institutional investors (FIIs), was subscribed by them.

However, one of the crucial issues which may impact the Hughes Tele.com offering is a long gestation period, with profits expected to roll in only after the first four years. This would impact the investing sentiment of the retail investor, who is expected to be the main investor in the fixed price portion.

"The issue should do well considering factors like branding and investors viewing the company as the strongest long-term player in the Maharashtra circle to take on the likes of MTNL,'' Shanti Ekambaram, executive director, Kotak Mahindra Capital Company, said.

According to Nimesh Shah of the merchant banking outfit, Fortune Financial Services, the issue would sail through strongly even in weakening market conditions. "Even if we were to look at price of Rs 12, it would seem to be a good bargain. It is a strong brand and this factor will continue to boost demand for the offering.''

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