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Private Telecom Project in India

Private Telecom Project in India. Professor Campbell Harvey BA 456. Agenda. Background The Opportunity Telelink’s Projections Our Analysis What Happened Questions?. Background: India. Background: India. Largest Democracy Second largest country - population Per capita GDP $440 (1999)

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Private Telecom Project in India

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  1. Private Telecom Projectin India Professor Campbell Harvey BA 456

  2. Agenda • Background • The Opportunity • Telelink’s Projections • Our Analysis • What Happened • Questions?

  3. Background: India

  4. Background: India • Largest Democracy • Second largest country - population • Per capita GDP $440 (1999) • Huge income disparity • In the midst of economic liberalization • Severe corruption

  5. Background: Rajasthan

  6. Background: Rajasthan • Second Largest State in India • 10.6% of area; 5.8% of population • Borders Pakistan; • militarily important • historically stable • Rich in mineral resources • silver, gypsum, asbestos, feldspar, lead, zinc, emeralds and garnets

  7. Background: Rajasthan • Major tourist attraction - $350 MM annually • Rapidly growing industrial sector • Ericsson, Ford, Coke, Corning, etc. • Presently 13th among Indian states in FDI • CAGR of 5.2% - national average 6.9% (1995-98)

  8. Background: Telecom Sector • State owned monopoly • Extremely low teledensity (2.2%) • Insufficient infrastructure to meet growing demand • Long wait lists for service hook up

  9. Background: Telecom Sector • Sector liberalized • Telecom Policy 1994 • New Telecom Policy 1999 • Opened to private investment • FDI of approx. $2 BN (till Sep. 2001) • Targeted teledensity: 7% (2005); 15% (2010) • 20% growth over last 5 years

  10. The Opportunity 2000 Acquire a stake in Shyam Telelink, the basic services licensee in the state of Rajasthan

  11. The Project • Member of Shyam Telecom Group

  12. The Project: Highlights • Operation license valid until 2018 • Currently the only competitor to state owned provider • A network of convergence • traditional voice telephony services • enhanced telephony services • internet access • cable TV services

  13. The Project: Financials • Peak funding requirement of Rs 7,929 MM (US$ 177 MM) • Proposed to be financed as: Equity Rs 3,524 MM (US$ 80 MM) Debt Rs 4,405 MM (US$ 97 MM)

  14. The Project: Cash Flows (click on the photo for the information)

  15. The Project: Valuation • IRR 38% • Pre-money Valuation Million US$

  16. Our Analysis: Cost of Equity • ICCRC India • Assumptions: • Risk Free Rate = 4% • US Market Risk Premium = 4% • Anchor to US • ICCRC Cost of Capital for India Cost of Equity (ICCRC) 19.7% Adjustment (comp. Beta) 1.4% Adjusted Cost of Capital 21.1%

  17. Our Analysis: Valuation • IRR = 31% • Pre-money Valuation Million US$

  18. What Happened • A few months after the release of the IM • Hughes Telecom IPO • Basic Services Licensee in Bombay and the State of Maharashtra • Valued at US$ 116 MM (pre-money) • Evinced a lot of foreign investor interest

  19. What Happened • Telelink valuation was way too high • Talks with potential investors driven by Hughes Telecom valuation • Management refused to lower valuation; decided to go it alone

  20. Questions?

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