Hitting Pay Dirt

Updated: Jun 29 2002, 05:30am hrs
The Hughes Tele.com - Tata Teleservices deal has taken the market by surprise. In what looks like a distress sale, the promoters of Hughes Tele.com India Ltd (HTL) have agreed to sell a 50.83 per cent stake (71.43 crore shares) in the company to Tata Teleservices Ltd (TTL) at a price of Rs 5.10 per share.

The price based on net present value is much lower than the prevailing market price of Rs 7.25. Tatas have hit pay dirt.

But the market does not seem to be enthused. It has given a thumbs down to this deal. HTL scrip fell by 7 per cent to Rs 6.60. TTL will make an open offer to acquire a further 20 per cent stake in the company at Rs 7.20 per share, the average price of the scrip during the past 26 weeks.

So how does this deal impact HTL In Tata Teleservices, HTL has a parent which is directly or indirectly into all spheres of the telecom sector. It has its presence in basic telephony, Wireless in Local Loop (WLL), cellular services, NLD, ILD as well as internet services.

While HTL had basic telephony services only in the Maharashtra circle (including Goa), TTL has operations in Andhra Pradesh. It will soon launch its services in Tamil Nadu, Gujarat, Karnataka, and Delhi. TTL is also planning to launch WLL services in Mumbai, so as to grab a pie of this lucrative market, so far the exclusive preserve of the government-owned MTNL.

HTL put up a perky performance as sales income was up an impressive 81 per cent to Rs 253 crore in the year to March 2002. In the year, it managed to reach a break even point in the year, by achieving an operating income of Rs 32 crore as against a loss of Rs 7.5 crore in the earlier year. However, the bottomline was still in the red at Rs 149 crore.

It would a matter of time before HTL attracts many corporate clients from its competitor MTNL, given Tata’s corporate connections.

This would also give an opportunity to the Tatas to provide a whole gamut of telecom services to their clients. That will generate business on a large-scale.

Hence, while TTL has acquired a controlling stake in HTL at a bargain price, this deal definitely will have positive impact on HTL’s long-term prospects.

Prashant Kothari