Micromax, valued at Rs 21,000 crore, reaches out to Alibaba, Softbank for stake sale
MUMBAI/NEW DELHI: With its IPO plans on the backburner, India’s largest homegrown handset vendor Micromax is exploring several strategic options. This includes selling a significant minority stake in the company with a clear milestone-linked roadmap for a change of control in the future, said multiple sources aware of the plans. However, the promoters of the company are equally open to an outright sale of the business right now, provided valuation expectations are met, said the people cited above. None of them wanted to be identified.
Goldman Sachs is said to be advising Micromax to explore these options. Feelers have gone out to several Asian technology and communications companies including Chinese ecommerce company Alibaba. the world’s largest e-tailer, and Japanese communications giant Softbank. Meetings overseas have taken place to this effect, the sources said.
The promoters of Micromax are seeking a valuation of $3-3.5 billion or as much as Rs 21,000 crore which is 2.5-2.9 times FY14 total income of Rs 7142 crore ($1.1 billion), according to Registrar of Companies (RoC) filings. It posted EBITDA of Rs 439 crore and profit after tax of Rs 284 crore that year.
A transaction would give bumper exits to private equity and financial investors like TA Associates which came on board five years ago and currently own 15% of the company. They are also believed to be nudging the management to explore strategic options, according to a source involved. Micromax was valued at around Rs1,500 crore when TA invested in 2010, paying around Rs 225 crore.
Sequoia Capital and Sandstone Capital own 2.68% each while Madison India Capital controls around 0.4%. In 2012, China’s Spreadtrum Communications, a fab-less semiconductor provider invested $10 million for a minority stake. The four founder promoters — Rahul Sharma, Rajesh Agarwal, Sumeet Kumar and Vikas Jain– set up Micromax in 2000 as a supplier of parts to Nokia. It then became hugely successful with affordable but feature-rich branded handsets. They own a little less than 80% of the company. Last year, Micromax hired former Bharti AirtelBSE -0.79 % CEO Sanjay Kapoor, Samsung India mobile head Vineet Taneja and Bharti Airtel veteran Badal Bagri to power growth and build a bigger brand before an IPO.
Until late 2014, the IPO plan was being vigorously pursued and the company had received pitches from several investment banks including Goldman, Morgan Stanley and Citi. But that thinking appears to have changed. “A stake sale of at least 26% now will also have a clear roadmap to a change of control. This will be a strategic and not a financial investor. You need a professional management to run the company during transition or even afterwards. But the promoters are also exploring selling out completely provided they get their premium,” said one of those cited above. “For the last few years, the founding promoters have taken a backseat and have allowed Kapoor and his team of senior professionals to run the operations for them.”
A Micromax spokesperson declined to comment. A Goldman Sachs spokesperson also declined to comment. An Alibaba spokesperson said, “As a matter of company policy we do not comment on rumours and speculation.” There was no response to mails sent to Softbank and TA Associates on Friday as of press.
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Source:Economictimes
