Nov 16, 2011

Erajaya Group and 40% IPO

PT Erajaya Swasembada, a distributor of cellular products, aims to sell 1.32 billion of new shares or 40% of its enlarged capital via initial public offering (IPO) scheduled on December 14 this year.
Referring to the IPO prospectus published today, Erajaya plans to provide 66 million shares or 5% of the IPO size for the program of management employee stock allocation (MESA), hopefully to encourage and improve sense of belonging to the company.
Erajaya has mandated PT Buana Capital, partly owned by Pieter Tanuri, stellar figure in the capital market, as the lead underwriter with full commitment. 
About 42% of the IPO proceed, which is expected to rise Rp3 trillion, will be used by Erajaya to settle promissory notes regarding to the takeover of TAM Group. Erajaya will use 16% of the proceed to develop distribution chain and retail business of Erajaya Group, and the remaining will be allocated for working capital.
TAM Group is a distributor for BlackBerry, Samsung, Sony Ericsson, and Verena in Indonesia. As of 2009, parent company of TAM, dubbed PT Nusa Gemilang Abadi, was indirectly owned by the same shareholder who owned Erajaya as well. 
Erajaya has secured controlling interest in TAM Group based on sale and purchase agreement signed on August 11 2011 with Dexter Financial Equities Ltd. Pursuant to the agreement, Erajaya has purchased convertible bonds of US$85 million issued by West Swan Overseas Ltd.
The takeover of TAM Group is in line with Erajaya strategy to develop distribution chain and products and brands' portfolio diversification. Nusa Gemilang and its subsidiary, TAM, recorded a Rp29 billion net profit in the first half of 2011
Who is Erajaya Group?
Erajaya is controlled PT Eralink International with 59.99% stake. Post the IPO, the company will be owned by public shareholders of 38%, 2% of MESA, and Ardy Hady Wijaya will own 0.001%.
Erajaya Group is one of the largest retailer and distributor for cellular communication services in Indonesia. Erajaya also provides branded products such as Acer, BlackBerry, Dell, Huawei, LG, Nokia, Samsung, and Sony Ericsson.
As of June 2011, Erajaya owns and manages 70 distribution points throughout Indonesia and 16,000 points of resellers. The company operates 236 outlets in 27 cities in Indonesia.
Erajaya Swasembada, which is led by President Director Budiarto Halim and President Commissioner Ardy Hady Wijaya, has controlled 16 subsidiaries such as PT Erafone Artha Retailindo, PT Data Citra Mandiri, West Swan Overseas, Nusa Gemilang Abadi, and PT Prakarsa Prima Sentosa.
In the first half of 2011, Erajaya Swasembada posted Rp2.04 trillion net sales, a 10.45% decrease from Rp2.27 trillion a year earlier. Operating profit increased 7.70% to Rp108.5 billion from Rp100.7 billion, and net profit fell 14.77% to Rp67.8 billion from Rp79.5 billion. The company made slim operating margin and net profit margin of 0.05% and 0.03%.
Dividend policy 
On October 20 2010, Erajaya distributed a cash dividend of Rp50 billion to its shareholders. The company has Rp490 billion retained earning.
Post the IPO, Erajaya plans to distribute dividend with the ratio of 40% of its net profit starting from 2012 after it allocates retained earning.

Disclosure: No position at the stock mentioned above.

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