BSNL IPO: Is India Prepared?

A year ago Hutchison Essar was valued at $18.8 Billion by Vodafone. Bharti Airtel is today valued at $45Billion by Indian Stock Exchange. Reliance Communications (the company which made Cellphone a common man’s necessity) is valued at $38 USD.

Looking at this BSNL, the state owned Telecom Giant which has a huge fixed line, cellular, broadband and now IPTV business valuation at $100 Billion, looks cheep.
After all BSNL has the more infrastructure than any of them can even handle.
Also while all the other companies are creating SPV and hiving out tower business to keep depreciation cost to eat into their profitability, BSNL’s management inherited a nation wide infrastructure which is already depreciated to zero value.
Not only this, BSNL used to get as much as Rs 3,200 Cr INR p.a. from its competition as Access Deficit Charges to fund rural telephony and build infrastructure.

So essentially in a capital intensive operations like tele communications, BSNL is several years ahead of other players. Had it been under private control and had half the work-force, I won’t even bat an eye lid if their operations were evaluated at even $200 Billion.

But the question remains is India prepared for BSNL IPO?

SEBI laws force the company to offer a minimum of 10% of the shares for the public offering. Out of this 10%, atleast 30% has to be reserved for the Retail Investors. And going by the history of all IPO of the Public Companies, another 3-5% would be reserved for babus and government employees. So essentially BSNL has to raise some 3.5 Billion Dollars from the retail investors. (or 460 Billion INR).
Not a large sum, considering that India is a Trillion Dollar Economy and household saving rate is close to 30%. But the problem is that Government has put a cap of 100k INR for investments by small investors. So BSNL needs to entice about 4.6 Million investors to invest in the company.

Getting a million people to pay for a 50p candy is a big Marketing task. So consider how big a task is convincing 4.6million people to invest 0.1Million INR each… and that too within 5 days.
Companies like DLF, ICICI, and Relaince Power have tried all tricks. (5% cash discount, option of payment in installments (3 in case of ICICI FPO)) and yet their mega issues are barely subscribed. Sahara Group (one of the India’s largest conglomerate) is forced to carve its business to lots of smaller entities and break the Big IPO into several smaller ones (Its infrastructure IPO is expected to hit soon) SBI was forced for an rights issue because there was no way it could raise the kind of money it needed without dumping the shares at a throw away price. The problem is that Indians have money (reliance is raising billions of dollars every minute), but the laws are preventing them being channelized efficiently. The Corporate India badly needs funds to fuel the growth and boom which we are facing. With the curb in the External Commercial Borrowing (USD loans) and because of the high handedness of Indian banks, they do not have too many options.

I do not know whether India need a maverick who can expand the market and make India ready for the Mega Issues or should we keep our fingers crossed and pray for the day when SEBI would increase the limit on investments we make? But I do know that India may run out of steam if the Companies cannot raise funds fast enough.

 

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7 thoughts on “BSNL IPO: Is India Prepared?

  1. it is not so much a question that is india prepared
    i think it will always be prepared if the price is right and lots of offer are digestible- the fact is that the govt and this govt is the worst promoter and public enterprises are always quoting at lowest pe’s to their peers..
    ongc is a great example of govt interference so are other oil cos which move in opposite direction to fundamentals and mkt changes…

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  2. bsnl and SBI r doing remarkably well.. even thought they r almost entirely in govt control.

    i agree these enterprises do not achieve their full potential because of political interference…. but what i am pointing out is that getting the no of investors that is required in the retail category is a mammoth task.
    That is why u do not see any Asian/african/american firm tapping the indian stock market… there is nothing called Indian DR….
    however singapore stock exchange and hong kong get a healthy share of foreign firms.

    that too when BSE is considered one of the oldest and biggest (in terms of no of scrips traded) exchange in the world

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  3. as i see it it is still a monopoly that is why the revenues
    management is never free and their job also includes keeping ministers
    happy and well furnished

    i would agree that ur analysis of bsnl is quite good

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  4. ps both are not doing a 10th of their potential in market cap
    as u had pointed out if the mkt cap of hutch vodaphone at 18.8 and bharati which started out as the other co that made phones for mtnl and bsnl as 45 billion and that of bsnl as 100 blln according to size it should be valued a lot lot more

    compare sbi with icici and hdfc in terms for pe and peg and u get the picture
    govt stocks underperform … period

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  5. //i would agree that ur analysis of bsnl is quite good//
    thanks. making predictions based on scientific analysis is the reason why i am so much hooked to the market (and every day i learn something new)

    //management is never free and their job also includes keeping ministers//
    atleast BSNL has kept pace (if not stirred) with the revolution which transformed this rich man’s luxury to a common man’s necessity. I must have told u before, there was a time when I had to wait for 7 years in the heart of Delhi to get a phone line… and now i can just walk into any store and walk away with a SIM.

    //ps both are not doing a 10th of their potential in market cap//
    there is only 1 trillion dollar company (Petro China), and the first billion dollar company was also another oil firm (Standard Oil)
    BSNL has huge potential, but do you think BSNL can break the stronghold of Oil and MNCs in mega cap firms?

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  6. I agree, BT has a market cap of $43 billion, Vodafone $188 billion and AT&T is valued at just $230 billion.. It won’t take BSNL long to beat AT&T and Vodafone in Market Cap.

    but to do that, their babu like mentality needs to change
    https://enagar.com/2007/05/13/ban-on-voip-phones/#comments
    multiple research papers have proved that a telecom is changing the face of the planet.
    it is the fastest and the cheapest way to remove grass root poverty from the nation.. and hence no expense should be spared in increasing the cellphone penetration, and affordability….
    But I doubt any government agency would be capable of handling this high growth capital intensive industry for long.
    Telecom, like electricity distribution, favors monopoly and if the aggressive are able to drive BSNL out of even one territory, then the rest of the empire will fall like Dominoes…. and that is a concern….

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