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.