Hi Arjun,
In my understanding, management had always maintained that it will need some debt to fund the renewal of existing frequency and acquiring new frequency in Phase-III. In fact, management had indicated in Q2 Concall, that they had spent around 50 odd crores more than what they had budgeted for which I feel is commendable in the context of extraordinary high prices paid for some frequencies by some bidders. So, My understanding is that 150-200 Crore debt was always on cards and it quite manageable in the context of their very strong cash flows of 100 odd crores + (and growing!)
Coming to ROE, as I mentioned business has two distinct characteristics
– Cash flow is much more than PAT after few years of auction thus ROE (which is PAT/Total equity) is not an accurate measure as it understates the returns from the business
– Secondly, by very nature, this is a business where business accumulates cash an then deploys it at once (during auctions and renewals). Typically, such cash flow focused businesses are evaluated on IRR basis and ROE may not be a right measure.
Though, ROE is very good measure for most of the businesses, it may not be an optimal one for few. This is one such business where ROE may give a wrong impression of the business characteristics
| Subscribe To Our Free Newsletter |
