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Telecom sector turns market darling

Anlaysts say by 2010, telecom players may emerge as country's biggest wealth creators, reports Arun Kumar.

india Updated: Oct 29, 2006 20:58 IST
Arun Kumar

With the economy growing at around 8 per cent, mobile phones getting cheaper and networks expanding furiously, India's catch-up game with China has entered a new phase.

With hot telecommunication players becoming market favourites in wealth creation. All signs are that this is just the beginning in a nation of one billion people.

Last Friday, when Bharti Airtel Ltd declared results after its biggest single-quarter subscriber addition, its market value zoomed by as much as Rs 4,559 crore on a single day.

When it listed after going public in February 2002, its total market capitalisation was only Rs 8,325 crore and even declined to Rs 5,550 crore subsequently.

Bharti entered the elite Rs 100,000-crore ($22 billion) market cap club on Friday. Chances are that other players in the sector would match its growth, even if they do not near the club.

Reliance Communications, which listed this year after being hived off from Reliance Industries, added Rs 3,404 crore to its market value on Friday on the back of Bharti's buzz, to close at Rs 78,656 crore. It is scheduled to declare its quarterly results on Monday.

The combined market cap of the listed big two now stands at Rs 1,78,600 crore or $40 billion. Though well behind these two, Hutch Essar, Tata Teleservices and Idea Cellular also command attractive valuations.

Industry analysts, using yardsticks like subscriber base, market share, brand value and growth potential and comparing them with existing listed players, say Hutch's value can be estimated at $12.5 billion, Idea Cellular's at $3.5 billion and that of Tata Teleservices at $4.5 billon.

The private players command a combined market capitalisation of $60 billion, or around Rs 2,75,000 crore. They exclude state-owned Bharat Sanchar Nigam Ltd (BSNL) and state-controlled MTNL Ltd.

Anlaysts say the current trend clearly indicates that by 2010, when the industry's subscriber base is expected to be around 350 million, up from the current 160 million, telecom players would emerge as the biggest wealth creators.

"Indian telecom companies are replicating the Chinese market, where mobile companies have fabulous success in term of penetration rate," said Sanjiv Kaul, managing director of ChrysCapital.

ChrysCapital, the largest private equity player in India, last week took a four per cent stake in Idea Cellular, the nation's fifth largest player, in a new vote for the sector.

"The telecom companies have reached a critical mass. In the next three years they will be of reasonable size in terms of subscribers," Kaul said, adding that market capitalisation was a reflection of the growth potential.

China is pointing to the way Indian telecoms players could go, analysts say, citing peer group comparisons.

China Mobile, spun off from a state monopoly, has a market value of $127 billion, with a market share of around 65 per cent at 200 million subscribers. Rival China Unicom has a market value of $11 billion.

If BSNL, China Mobile's Indian equivalent, were to be listed on Indian bourses, the current market value of India's telecom companies would be of the order of $100 billion, industry analysts say.

MTNL has a market value of around $2.1 billion now, as its monopoly has eroded in its boroughs, Delhi and Mumbai.

India is the world's fastest growing wireless market, with a net addition of five million-plus subscribers every month. More growth closer to Chinese levels show potential for wealth creation.

"The headroom for growth is huge, with wireless penetration still at 10.4 per cent and telecom penetration at 14.4 per cent," says Subham Majumdar, analyst with Macquarie Research.

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First Published: Oct 29, 2006 20:47 IST