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Telecom stocks performed at par with the market during the period April 3, 2006 to March 26, 2007. Major telecom stocks including those of Bharti Airtel, Tata Teleservices (Maharashtra) Limited (TTML), Videsh Sanchar Nigam Limited (VSNL), Mahanagar Telephone Nigam Limited (MTNL) and Reliance Communications Limited (RCL) gave an unweighted average return of 14 per cent, about the same as the weighted 30-stock BSE Sensex at around 13.5 per cent.
Among the selected telecom stocks, RCL and Bharti were gainers. Bharti's growth momentum continued, with its stock growing by over 84 per cent while RCL gave a return of 33 per cent. MTNL, VSNL and Tata witnessed negative growth.
A look at how each of these stocks fared during the period mentioned:
Bharti Airtel
Bharti witnessed an 84 per cent appreciation in its share price, outperforming the Sensex and all other telecom stocks during the period under review. This increase has been supported by a rapid growth in subscriber base and good financial performance in 2006-07.From levels of around Rs 400 in April 2006, its stock hovered around Rs 750 in March 2007. As on March 26, it was trading at Rs 775.90.
Bharti's stock has shown sustained growth during the past two years. The factors that worked in its favour were the company's pan-Indian presence, huge subscriber numbers, strong financial performance and government approval for the FDI hike in telecom from 49 per cent to 74 per cent. The cut in licence fee and demerger of the tower business will unlock value in the company.
Bharti plans to invest $8 billion by 2010 to gain a higher market share.
Reliance Communications
Reliance Communications saw a 33 per cent increase in its share price since April last year. The stock started at Rs 320, went down to the Rs 200 levels by June, then recovered and is currently trading at around Rs 425.
The company has hived off its tower business into a separate subsidiary to enable enhanced sharing of passive infrastructure. This could improve its margins. A strong growth in subscribers is also expected with its pan-Indian launch of GSM services. Besides the proposed listing of FLAG Telecom, its 100 per cent subsidiary, could unlock significant value.
Idea Cellular
Idea Cellular is the latest telecom entrant on the bourses, getting listed only on March 9 this year. Its stock has given a return of about 8.53 per cent since then and is currently trading at Rs 92. Analysts expect Idea to grow at similar growth rates as Bharti, at least in the medium term, despite being smaller in size and footprint, and having a slightly weaker balance sheet.
MTNL
The company's stock started the period under review at Rs 189.45 but has depreciated since by 21.4 per cent.During this period, it witnessed lows of Rs 132 and highs of Rs 219. It is currently trading at around Rs 148.
MTNL seems to be underweight. The pressure on the company's basic services, which contribute 90 per cent to the company's total revenue, has been the primary reason for its poor performance. This has been perpetuated by factors such as stiff competition from private sector players, the shift towards mobile telephony and denial of ADC. The company has been unable to arrest the decline in its fixed line business despite efforts to spruce up its operations in its two circles, Delhi and Mumbai. The one comforting factor has been its performance in the cellular segment, as is evident from its increased mobile subscriber base.
MTNL's proposed merger with BSNL has been on the backburner. Such a merger would provide MTNL with the cushion of vertical integration while giving BSNL a chance to extend its wireless services to Mumbai and Delhi. This could spell good news for the company's stock.
TTML
TTML, which holds licences for the Maharashtra (including Goa) and Mumbai circles, started the year with a share price of Rs 24.25. The stock is currently trading at about Rs 21, a drop of about 11.75 per cent.
Despite its poor financial performance, the stock remains promising. This is due to three positive factors. One, wide acceptability of fixed wireless services, which the company provides. Second, expansion of Tata Teleservices' network to 20 circles. Third, its sound lineage.
The Tata Group has identified telecom as its "main thrust area" for the next three to four years and has projected an investment of Rs 250 billion for expanding its services, building its network and providing handsets. This is over and above its Rs 150 billion existing investment.
It is worth noting that the stock of the company (then Hughes Tele.com) was quoting at only Rs 6 in January 2003.The increase came after the Tatas bought a controlling 51 per cent stake in the company in December 2002, issuing redeemable preference shares, and picking up an additional 20 per cent through an open offer.
VSNL
VSNL saw a 15 per cent decline in its share price since the beginning of April last year. The stock started the year at Rs 473 and was volatile thereafter, hovering between Rs 300 and Rs 500. It is currently trading at Rs 403.
The slide has been primarily due to the company's average financial results and shrinking margins. The company's net profit was down 36.61 per cent in 200506 over the previous year, and 5.4 per cent in the third quarter ended December 2006 over the corresponding period of the previous year.
However, the company has been taking initiatives to derisk the business model from the ailing international long distance sector. It has set up operations in Sri Lanka, Singapore, the US, the UK and South Africa. It also plans to offer managed data services.
A fresh impetus could be provided to VSNL's stock through efforts to spread its reach overseas via a series of acquisitions. In early 2005, the company had acquired Tyco Global Network for $130 million. This 60,000 km undersea cable network connects North America, Europe and Asia and has made VSNL the biggest supplier of submarine cable connectivity in the world. The company also acquired Teleglobe International Holdings in February 2006 for $239 million.Teleglobe provides wholesale voice, data, IP and mobile signalling services.It is focusing on the enterprise segment and is on its way to establishing a monopoly in the bandwidth segment.
Analysts are optimistic about VSNL's stock since the access deficit charges (ADC) rate cut could boost the company's margins.
