ITI FPO Opens; Should You Subscribe?

ITI Limited's (formerly known as Indian Telephone Industries) follow-on public offer (FPO) hit the capital markets on 24 January. The public sector company has set the price band at Rs 71-77 per share and the issue will close on 31 January.

Ahead of the FPO, the company said that it intends to raise about Rs 1,400 crore, of which Rs 607 crore shall be utilised to repay loans.

ITI: Quotes, News

BSE 254.600.35 (-0.14%)

NSE 254.830.51 (-0.20%)

What is Follow-on Public Offer?

Through FPO, an already listed company can issue further shares to the public and just like an IPO, the issue can be in the form of new shares or offer-for-sale from a promoter or investor group.

Currently, the Government of India holds 89.97 percent stake in ITI. To conform with the minimum public shareholding norms for listed companies, the company is making a fresh issue of 18 crore equity shares through the FPO to reduce the GoI's stake to below 75 percent.

Applying for an FPO is same as that for an IPO and also includes the UPI option to place mandate for the bid.

About the FPO

• The issue will include a fresh public offer of 18.18 crore shares with the face value of Rs 10 each.
• At a price band of Rs 71-77, the company could mobilise Rs 1399.86 crore (upper price band).
• The application has to be made for at least 150 shares and in multiples of 150, thereafter.
• Shares are proposed to be listed on BSE and NSE.
• The issue is 16.85 percent of the post issue paid-up capital of the company.
• The book running lead managers to the issue are BOB Capital Markets Ltd, Karvy Investor Services Ltd and PNB Investment Services Ltd.
• KFin Technologies (formerly known as Karvy Fintech) is the registrar to the issue.

Of the Rs 1,400 crore that the company intends to raise from the issue, proceeds will be used to finance working capital (Rs 642.48 crore), repayment of high-cost loans (Rs 607.29 crore), and general corpus fund needs (around Rs 135 crore).

"We do have around Rs 936 crore of working capital loan from the bank consortium, in which SBI is the lead bank, and then around Rs 300 crore loan is there from the Government of India and Department of telecommunication," said R M Agarwal, Managing Director of ITI Ltd to PTI.

ITI Limited is looking for a market cap of Rs 8,307 crore from the issue (based on upper price band).

Should you subscribe?

For the last three financial years, ITI has reported consolidated net profits (including Government of India Grants) of Rs 266.39 crore, Rs 230.56 crore and Rs 92.54 crore for the financial years 2017, 2018 and 2019, respectively.

In the first half of 2019-20, it made a loss of Rs 54.40 crore. The company's management said that the first half has always been a lean period for its performance.

Overall, ITI Ltd has diversified on many fronts. Agarwal, told reporters last week that the 72-year-old company, which incurred losses from 1996 onwards for a period of 16 to 17 years, has bounced back.

The company intends to start manufacturing Optical Fibre Cables, smart energy project, etc and has a healthy order book indicating sufficient workload for the next 4 to 5 years.

ITI Ltd is gearing to play an important role in the government's "Digital India" plan.

The company's shares closed at Rs 92.95 a share on 23 January and the price band for the FPO has been fixed at Rs 71-77, thus showing an investor-friendly gesture.

Analysts suggest that with the possibility of a turn around in the company's business, subscribers can consider this investment with a long-term perspective.