| ICICI Ventures' acquisition of the Tata group's 50 per cent stake in Tata Infomedia marks a drastic change in ownership style. |
| The very fact that a venture capitalist firm has acquired control of the firm implies an intention to exit the investment at a later date, either through sale of stake in the company or through a sale of individual businesses. |
| Its acquisition at a price of Rs 176 per share is considerably higher than the average price of around Rs 80 that prevailed till June 2003. |
| The price is, therefore, an extremely good one for the shareholders as it implies a premium of 120 per cent to the June price. The stock has moved up since June, but even at prevailing market prices, the premium was around 12 per cent when the deal was announced. |
| The stock had last touched the Rs 150 levels in May 2002, touching a low of around Rs 65 in April 2003, providing an exit opportunity for the long-term shareholders. The steep rise in the stock after June, however, needs looking into. |
| On the valuations front, while the offer price is attractive, it discounts FY03 earnings by around 15 times. The last year has been one of low advertising rates and impacted earnings. |
| For instance, the increase in paper prices in the fourth quarter led to a decline in operating margins to 6 per cent in the March 2003 quarter compared with 15 per cent in the December 2002 quarter. |
| Further, compared with an earnings growth of 12 per cent in FY03, the first quarter of FY04 witnessed a 30 per cent jump in profits before tax. With business sentiment improving, it will also result in better rates for its publishing division (54 per cent of revenues in FY03) comprising mainly the yellow pages. |
| Thus, with the a conservative growth estimate of around 20 per cent for the year, it would imply a price-to-book value of only 1.5 times. But according to analysts, the business is not a high growth one and as a result, would not really command high valuations. |
| Further, its EV/EBIDTA of around 7 times at current market prices is marginally lower than mainstream media companies. With sustainable growth prospects not very high, any improvement in value will have to come from scaling up the business, which will make it attractive for large conglomerate buyers. |
| With contributions by Sameer Ranade |
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