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Telecom stocks gave a good return T during the period February 1, 2005February 1, 2006, though they underperformed the market. Seven major telecom stocks – Bharti Tele Ventures Limited (BTVL), Tata Teleservices (Maharashtra) Limited (TTML), Videsh Sanchar Nigam Limited (VSNL), Mahanagar Telephone Nigam Limited (MTNL), Avaya GlobalConnect, Shyam Telecom and HFCL – gave an unweighted average return of 18.78 per cent. In comparison, the weighted 30-stock BSE Sensex appreciated by around 50 per cent and the sectoral BSE Teck rose by 43.6 per cent during this period.
Among the selected telecom stocks, VSNL, Bharti, Shyam Telecom and Avaya GlobalConnect were gainers. VSNL witnessed a rise of 66 per cent in its stock price, Bharti grew by almost 58 per cent, Shyam Telecom by 18 per cent and Avaya by 13 per cent. However, HFCL, TTML and MTNL witnessed negative growth.
A look at how each of these stocks fared during the period under review...
Bharti Tele Ventures Limited
BTVL witnessed a 58 per cent appreciation in its share price during this period, outperforming both the Sensex and the BSE Teck. The rise was supported by a rapid growth in subscriber base and good financial performance in 2004-05 as well as in the ongoing year. From around Rs 220 levels in February 2005, the stock rose to over Rs 300 in August and then to Rs 355 in end-January 2006. It is currently (February 1) trading at Rs 350.45.
The stock rose in the recent past because of better-than-expected results for the third quarter of 2005-06, ended December 2005.What also helped was the approval of the FDI hike in telecom from 49 per cent to 74 per cent and Bharti's recent 10 per cent stake sale to Vodafone, claimed to be the single largest foreign investment in India.Bharti Tele Ventures will soon be renamed Bharti Airtel. As a part of its consolidation exercise and to achieve business synergies, it has decided to merge its fixed line, long distance, broadband and VSAT businesses.
Analysts are bullish on the stock with a target price of over Rs 400. However, they believe that the challenge for the company lies in maintaining its margins in the face of keen competition.
VSNL
VSNL has seen a 66 per cent appreciation in share prices since the beginning of February last year. The stock started the year at Rs 226.15, and then dipped to Rs 180 towards end-March. It rose steadily thereafter and crossed Rs 430 in the beginning of August. The stock has since seen a series of ups and down and is currently trading at Rs 376.
The strong stock performance mirrors the growth initiatives taken by the management to de-risk the business model from the company's ailing international long distance business. In early 2005, the company acquired Tyco Global Network for $130 million. The 60,000 km undersea cable network connects the North American, European and Asian continents. The acquisition made VSNL the biggest provider of submarine cable connectivity in the world.The company also acquired Teleglobe International Holdings, a provider of wholesale voice, data, IP and mobile signalling services, in July for $239 million. In September, it also completed the acquisition of Tata Power's broadband unit, Tata Power Broadband. It has set up operations in Sri Lanka, Singapore, Europe and the US. And is now geared up to roll out services in South Africa and Nepal. A fresh impetus to the stock could be provided by the company's efforts to spread its reach overseas through a series of acquisitions.
VSNL's financial results have also augured well for the company. It announced a 6 per cent increase in net profits for the quarter ended December 2005 over the corresponding quarter of the previous year. It also recorded a 100 per cent increase in net profits during 2004-05 over the previous year.
MTNL
During the period under review, the stock began at a price of Rs 139 and has since depreciated by 2.5 per cent. During this period, it witnessed a low of Rs 110 and a high of Rs 151. It is currently trading at around Rs 135.
The pressure on the company's basic services, which accounts for 90 per cent of its total revenues, is the main reason for its poor performance. This is a result of factors like stiff competition from private players and a move towards cellular telephony.Despite its efforts to streamline operations in its two circles – Delhi and Mumbai – the company has been unable to arrest the decline in its fixed line business. The only redeeming feature has been its performance in the cellular segment, as is evident from its increased cellular subscriber base.
The company's net profit dipped 37 per cent during the quarter ended December 2005 to Rs 1.27 billion over the corresponding quarter of the previous year.
Talks of MTNL's merger with BSNL have again started doing the rounds. A merger with BSNL will provide MTNL with a cushion of vertical integration while BSNL would get a chance to extend its wireless services to Mumbai and Delhi.This could spell good news for its stock.
Tata Teleservices (Maharashtra) Limited
TTML, which holds the licences for the Maharashtra (including Goa) and Mumbai circles, started the year with its share price at Rs 29.75. The stock is currently trading at around Rs 26, a drop of 12 per cent. The stock saw an upward trend till the beginning of March, when it was trading at Rs 30 levels. It depreciated to around Rs 24 by the beginning of May but thereafter regained its previous levels on rumours that investors, including SK Telecom, were in talks to buy a stake in its parent, Tata Teleservices. The talks did not materialise and the stock has been on a downward trend since late December.
However, the news currently doing the rounds is that TTML is set to offload some of its stake to a clutch of investors.The company also approved a rights issue in December
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Despite suboptimal financial performance, the stock is not rated poorly. This is on account of three positive factors.One, the growing acceptability of fixed wireless telephones. Second, the company's expansion of its network to 20 circles.Third, the credibility of its parent company. The Tata Group has identified telecom as its "main thrust area" for the next three to four years and has projected a Rs 150 billion investment for expanding services, building its network and providing handsets.
Avaya GlobalConnect
The company's stock has witnessed a growth of 13 per cent during the period under review. The stock started at about Rs 361, crossed Rs 520 levels in December and is currently trading at Rs 407.
Its strong lineage and tie-ups with big players, plus a leadership position in most of the segments it operates in have led to its positive performance. Avaya is a 59 per cent subsidiary of Avaya, US and provides enterprise communication solutions rangingfrom converged voice, data and video networks to contact centre solutions, unified messaging solutions and customer services.It is a dominant player in the contact centre and internet protocol telephony market.
The recent fall in stock prices can be attributed to poor quarter figures for the period ended December 2005. Avaya reported a net profit of Rs 36.1 million for the quarter as compared to a net profit of Rs 207.2 million in the corresponding quarter of the previous year. Net sales rose nearly 10 per cent to Rs 1.07 billion from Rs 970 million.
Shyam Telecom
The company's stock has seen an increase of 18 per cent since the start of February 2005 when it stood at Rs 82.25. It crossed Rs 126 levels in August and is currently hovering at around Rs 96.
The company has streamlined its operations over the last couple of years and is concentrating on its CDMA business. The company sees improved voice and data services, and value-added services as future drivers of revenue and subscriber growth.
Shyam is one of the largest suppliers of rural telecom systems. Its venture, Shyam Telelink, is the licensee for providing basic telephony services in Rajasthan. The company's revenues have been growing through its increased subscriber base. A number of international telecom companies including Maxis Telecom are reportedly interested in picking up a stake in Shyam Telelink. During the year, Shyam Telecom entered into a $26 million deal with Ericsson to upgrade its network and plans to enhance its existing network to add 500,000 fixed and mobile subscribers over the next two years.
HFCL
For a major part of the year, HFCL's stock remained above its starting price.However, it has witnessed an 8 per cent decline since early February 2005 when it was priced at Rs 20-Rs 21 and is currently trading at around Rs 19.
The company showed poor financial performance during 2004-05. The net income from operations came down by almost 46 per cent though it managed to post a lower loss figure for the year.
However, going by the quarterly financial results for 2005-06, the company has been doing well. It reported a net profit of Rs 298.6 million for the quarter ended December 31, 2005 compared with a loss of Rs 169.3 million in the corresponding quarter of the previous year. The turnover was up at Rs 1.7 billion, driven by the increase in demand from customers for telecom equipment and turnkey services.During the previous quarter, JulySeptember 2005, too, it posted a 98 per cent increase in turnover at Rs 2.05 billion and a profit of Rs 162.9 million.
