The Indian stock market has risen about 39 per cent since it became the third emerging market after China and Russia to surpass the $1 trillion market cap in May 2007. Sound economic growth over the past few years and a stronger currency translated into India’s Sensitivity Index crossing the 20,000 mark, for the first time, in October 2007.
As the stock market crackled through 2007, the shares of telecom firms also benefited. However, the climb could have been sharper had ongoing debates on policy issues like spectrum allocation, dual technology and licencing not pulled down the ascent somewhat.
In spite of this, the telecom sector has seen its share in the total stock market more than double, from under 4 per cent three years ago to more than 8 per cent now. While the sector has been helped by new listings ?? those of Idea Cellular and Spice Communications, for instance ?? even existing players like Bharti Airtel, Reliance Communications Limited (RCOM) and Videsh Sanchar Nigam Limited (VSNL) have witnessed a big leap in scrip and market value.
Bharti Airtel
Bharti Airtel’s stock price appreciated 48.41 per cent from Rs 633 as on January 1, 2007 to Rs 939.45 as on November 30, 2007. This was mainly on account of the company’s strong financial performance and a rapid growth in its subscriber base. Bharti showed a tremendous earning growth of 100 per cent in financial year 200607, despite concerns over falling average revenue per user (ARPU).
Setting a record, Bharti’s stock reached Rs 1,126.75 on October 15, 2007, taking the company’s market capitalisation to over Rs 2 trillion. But the new norms for spectrum allocation have had a negative impact on Bharti. Following the announcement, the company’s stock lost 20 per cent in a fortnight. Bharti’s market cap stood at Rs 1.78 trillion as in November 2007.
Bharti Airtel posted a 73 per cent gain in profit in the second quarter of 2007-08.Net income rose to Rs 16.1 billion from Rs 9.34 billion in the quarter ended September 2006.
According to industry analysts, given its thrust on capital expenditure to improve network capacity, the company is expected to remain a major beneficiary of the telecom boom in the country. Its acquisition of the undersea cable company Network i2i is likely to boost the performance of its long distance carrier business. Bharti expects its foray into internet protocol TV (IPTV) and direct-to-home (DTH) services to further add to its revenues from the fourth quarter of 2007-08.
The company is currently in the process of demerging its mobile tower business consisting of more than 45,000 towers. This is expected to improve the operational efficiency of the parent company, apart from unlocking shareholder value.
Reliance Communications
Ever since RCOM’s stock was listed on the Bombay Stock Exchange (BSE) on March 6, 2007 the share price has moved far above its first trading price (Rs 290.85). RCOM saw a 43.35 per cent increase in its share price over the past 11 months. The stock closed at Rs 674.85 on November 30, 2007, compared to Rs 470.75 on January 2, 2007. During this 11-month period, its market cap, an indicator of shareholder wealth, jumped more than three times to Rs 1.38 trillion from Rs 370 billion.
RCOM was among the top ten stocks held across equity fund portfolios, with 189 schemes holding the stock in September 2007. About 30 funds invested over 5 per cent of their portfolio in this stock.
Compared to Bharti’s stock, which is trading at a price to earning (P/E) ratio of 30, RCOM is trading at a P/E ratio of 34. Also, considering other valuation parameters such as enterprise value (EV)/earnings before interest, tax, depreciation and amortisation (EBItDA) and EV/subscriber, Bharti’s scrip is selling cheaper that that of RCOM.
RCOM is expected to be the biggest beneficiary of the dual technology and mobile number portability regimes. With the company rolling out its GSM network and number portability now being allowed, RCL will be well placed to wean away users from other operators.
Idea Cellular
Idea’s stock has moved up from Rs 85.55 on March 9, 2007 to Rs 122.40 on November 30, 2007, giving a return of 43 per cent over this period.
Idea Cellular, whose market cap stood at Rs 322.56 billion on November 30, became a part of the National Stock Exchange’s benchmark Nifty index with effect from December 12, 2007. The 50share Nifty is the second most followed index in the country, after the BSE’s 30-share barometer, Sensex.
Idea Cellular’s net profit doubled from Rs 1.1 billion in the July-September 2006 quarter to Rs 2.2 billion in the July-September 2007 quarter. Total revenue rose from Rs 10.13 billion to Rs 15.64 billion during the same period.
VSNL
VSNL saw a 44.39 per cent increase in its share price since the beginning of 2007.The stock started the year at Rs 433.95 and was subsequently fairly volatile, hovering in a broad range of Rs 350 to Rs 570. It, however, touched a new high on November 30 with a closing price of Rs 626.60. The company has a market cap of Rs 178.58 billion.
VSNL posted a 42.5 per cent dip in net profit from Rs 1.07 billion in the quarter ended September 2006 to Rs 614.20 million in the quarter ended September 2007. Total income dropped from Rs 10.03 billion to Rs 9.87 billion.However, the decline in its financial results did not affect its stock prices, possibly because of its plans to expand wireless broadband facilities.
VSNL has announced the expansion of its international in-roaming service on Wi-Fi, with the addition of NTT, Japan.The company has been leading the growth of the Wi-Fi industry in India and has the largest Wi-Fi deployment among domestic internet service providers with over 350 hotspots. It has drawn up major plans for 2007-08 to widen its footprint, to over 1,000 hotspots. This would bring high speed broadband internet closer to the large Indian travelling population.
Spice Communications
The latest telecom entrant on the bourses, Spice was listed on June 25, 2007. Since then, its stock has not been able to touch its very first trading price of Rs 60.65 on July 19, 2007. As on November 30, 2007, its stock was trading at Rs 48.50, giving negative returns of 20 per cent. The company’s market cap stood at Rs 33.46 billion.
Some industry analysts believe that shareholders are unlikely to make profits out of Spice’s stocks, unless the company initiates some major expansion steps, like tying up with other players such as Idea or allowing Telekom Malaysia to pick up more stake in the company.
The company posted a net loss (after taxes) of Rs 55.3 million for the quarter ended September 30, 2007, as compared to a net loss of Rs 248 million for the same period in the previous year.However, total income increased by 42.18 per cent to Rs 2.65 billion for the quarter ended September 30, 2007, as against Rs 1.86 billion for the same quarter a year ago.
Conclusion
State-owned Bharat Sanchar Nigam Limited (BSNL) is planning to enter the equity market in a year or so. According to company sources, the idea behind the stock market listing is not so much to raise capital as to put a value to the company.Speculation is rife that the company might offer 20 per cent of its equity through an initial public offering (IPO). But this is not the first time that BSNL is considering an IPO. The company’s earlier attempt at a stock market listing did not take off because the previous telecommunications minister Dayanidhi Maran was not in favour of it.
With the government now allowing CDMA players to enter the GSM arena, incumbents such as Bharti Airtel and Vodafone have started feeling the heat of competition from the Reliance and Tata groups ?? a scenario that could change the game in an industry witnessing heady growth. The entry of BSNL on the stock market will also, not unexpectedly, add its own spice.
