|
| RESEARCH IT! >> IPO BUZZ! | |
Bharti Tele-Ventures Limited
|
| Issue Summary |
|
|
| Background |
| Issue structure | ||||||||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||||
| Business | |||||||||||||||||||||
|
Bharti Tele-Ventures Limited (BTL) is one the India's leading private sector telecommunication service provider with presence in various segments of the industry viz. cellular, basic telephony, VSAT and Internet services. The cumulative subscriber base of the company as of September 30, 2001 was 1.3 m, consisting of 983,000 cellular, 128,000 fixed-line and 164,000 Internet subscribers. Total revenues for FY01 was Rs 8.5 bn with cellular division contributing to as high as 87% of revenues. BTL operates under two broad categories.
BTL also provides VSAT based data transmission to 60 corporates customers as of September 2001. It has received a Letter of Intent (LoI) from the Department of Telecommunications (DoT) for providing domestic long distance telephony (DLD) services. The company recently received the carrier access code for providing DLD services and has commenced operations. Besides, BTL has laid around 3,500 kilometers of fibre optic network in the state of Madhya Pradesh. | |||||||||||||||||||||
| Promoters | |||||||||||||||||||||
|
BTL is promoted by Bharti Telecom, which was incorporated in 1985. It is presently engaged in the promotion of telecommunication services through Bharti Tele-Ventures and its subsidiaries. Sunil Bharti Mittal, aged 44, is the Chairman and Managing Director of BTL. He started as a bicycle manufacturer and later on, entered into a partnership with Siemens to produce telephone equipment. He was one of the first private sector players to foray into telecommunication service way back 1992. | Sector | |
| The Indian telecom sector is one of the least developed in Asia. The annual telecom revenue in India is estimated to be around Rs 300 bn. The telecom sector can be broadly divided into three segments namely basic telephony, cellular telephony and Internet. The estimated market size of basic telephony market segment is estimated to be around Rs 100 bn. There are 20 telecom circles in India. While MTNL provides basic services in Mumbai or Delhi, Bharat Sanchar Nigam Limited (BSNL) is the basic service provider in all the other circles. The basic telephony sector has witnessed the gradual entry of private sector players like Hughes Tele and Bharti. One of the fastest growing segments in the Indian telecom industry is the cellular telephony business. The market size is estimated to be around Rs 33 bn and is growing at a CAGR of 20%. With the entry of public sector players, like MTNL and BSNL, the airtime charges have fallen significantly in the current year. The Indian telecommunication sector has come out leaps and bounds over the last one year. The Telecom Regulatory Authority of India (TRAI) has opened up cellular, basic telephony, domestic long distance telephony (DLD), and more recently, the international long distance telephony (ILD) segments. The entry of private players and tariff restructuring by TRAI has resulted in a sharp rise in subscriber base. The entry norm for private players has also been diluted in the ILD segment, which could open up new growth avenues for private players. | |||||||||||||||||
| Reasons to apply |
The Indian cellular subscriber base has increased from 1.3 m in 1999 to almost 4.7 m as of September 2001. Unlimited competition and the reduction in customs duty on mobile handsets has resulted in robust growth in subscriber base in recent years. Bharti's cellular subscriber base stood at 983,000 as of September 2001 (20.5% of India's cellular base). As per COAI estimates, cellular base expected to touch 50 m by 2005. Currently the company holds license to provide telecom services in 15 (existing as well as proposed) circles. These covers all four metropolitan areas, all five category A circles, five out of eight category B circles and one category C circle of India. The strong presence of BTL in key telecom circles is thus an added advantage.
| |||||||||||||||||
Apart from 27 cities in Madhya Pradesh, Bharti intends to provide basic telephony services in four additional circles of Delhi, Tamil Nadu, Haryana and Karnataka. These circles provide enormous opportunity for data transmission services due to a high concentration of software and information technology development activities. Since most of the IT enabled and software development services require high end-to-end bandwidth, expansion of facilities in these cities bodes well in the long run. |
Currently, since a major proportion of originating and terminating calls are required to pass through MTNL or BSNL network, the company is liable to pay interconnection charges. The government has recently allowed private cellular operators to retain 5% of BSNL's or MTNL's charges for calls routed through their fixed-line network. Besides BTL had entered into an agreement with Essar Cellular in Delhi, Spice Telecom in Kolkata and Tata Cellular in Andhra Pradesh, which has resulted in no interconnection charges (it is mutually beneficiary). With the company in talks with a number of other players, it could save a notable sum as interconnection charges. |
The total DLD traffic in India is estimated to be around 27 bn minutes with a market size of Rs 124 bn. The market is estimated to be growing above 15% per annum. Bharti recently stormed into the DLD segment by slashing tariffs from cellular to cellular calls by more than 60% in 2HFY02. It has also joined hands with five other cellular players for routing traffic. As tariffs fall, paid-minute calls are expected to register strong growth and this would benefit first-movers like BTL. |
As big players get bigger smaller competitors would either succumb or would be acquired by the large players. Cellular industry consolidation is a clear-cut example with just 5-7 players dominating the scene as against around 13 players when TRAI invited private sector participation in the segment. The number of players is expected to narrow even further. We are slowly moving towards a scenario where apart from PSUs, there would be two to three big integrated players in the telecom segment namely Bharti, Birla-Tata-AT&T and Reliance Group. Given the pan-Indian presence of BTL, consolidation will be benefit the company in the long run. |
The company is backed by professional management and has the ability to raise funds from creditable global majors like Singapore Telecom and Warburg Pincus. | |
| Reasons not to apply |
|
BTL incurred a loss of Rs 1,043 m for FY01 as compared to Rs 454 m in FY00. The consolidated accumulated losses for BTL was Rs 2,046 m. Given the expansion plans of the company, BTL is expected to incur losses in the coming years as well in light of the capital-intensive nature of the business. As a result, BTL is not expected to pay any dividends in the foreseeable future.
| |
|
Presently, the direct cost of adding a new subscriber, which primarily consists of commission expense, is substantially offset by the initial activation charges recovered from the customers. However, competitors like BPL Mobile had waived activation charges in the festive season to increase subscriber base. With both MTNL and BSNL increasing their presence in the cellular segment, BTL might be forced to waive activation charges. This, if combined with an increase in churn rate (the current average monthly churn rate is around 4.6%), might dent the average revenue per subscriber (ARPUs).
| |
|
The Telecom Regulatory Authority of India (TRAI) has allowed unlimited competition in the basic telephony segment and is evaluating a proposal for a fourth cellular operator in each of the telecom circles. In that case, competition could further exercise downward pressure on ARPUs and margins of the company. Already, with the entry of public sector players like MTNL and BSNL in the cellular segment, airtime charges have fallen drastically. Going forward, though airtime charges are not expected to fall rapidly, average incentive per subscriber could rise to enlarge subscriber base, which could adversely impact bottomline.
| |
|
Public sector majors like BSNL, MTNL and VSNL have an upper hand when compared with new players like BTL in terms of depreciated assets and large subscriber base. Following the rate cut by BTL on the DLD front, BSNL also slashed DLD tariffs by more than 60%. This could adversely affect revenue and profit growth of new entrants like BTL.
| |
|
Currently foreign direct investment (FDI) limit in the Indian telecom sector is capped at 49%. Already, foreign shareholders own approximately 41.7% of the company's outstanding share capital thus leaving little room for BTL to raise additional equity investments in the company from foreign investors.
|
| Financial Performance |
 | |||
| (Rs m) | FY99 | FY00 | FY01 |
 | |||
| Revenues | 2,449 | 4,481 | 8,481 |
 | |||
| Other Income | 155 | 370 | 550 |
| |||
| Total Income | 2,603 | 4,851 | 9,032 |
| |||
| Expenditure | 2,414 | 3,624 | 6,691 |
| |||
| EBIDTA | 35 | 857 | 1,791 |
| |||
| GPM (%) | 1.4% | 19.1% | 21.1% |
| |||
| Depreciation | 409 | 921 | 1,690 |
| |||
| Interest | 319 | 990 | 1,448 |
| |||
| Profit before tax | (539) | (684) | (797) |
| |||
| Extraordinary item | - | - | (110) |
| |||
| Less: Tax | 105 | 80 | 46 |
| |||
| Profit after tax | (433) | (603) | (862) |
| |||
| Minority Interest | (134) | (149) | 180 |
| |||
| Net profit | (299) | (454) | (1,042) |
| |||
| NPM (%) | -17.7% | -13.5% | -10.2% |
| |||
| Funding |
|
| |||||||||||||||||||||||||||||||||||||||||||||||||
| Shareholding |
| Particulars | Pre-Offer | Post-Offer |
| Promoters | 51.6 | 46.4 |
| Brentwood Investment | 20.6 | 18.5 |
| Pastel Limited | 17.7 | 16.0 |
| BTL Welfare Trust | 1.0 | 0.9 |
| Others | 9.2 | 8.3 |
| Public | - | 10.0 |
| Total | 100.0 | 100.0 |