BSNL IPO – Is there more to it than just numbers?

In what could be the mother of all Indian IPO’s, state owned telecom company, BSNL is slated to come out with its maiden public offer which could make it the second most valuable Indian company with a market cap of Rs.400,000 crore just behind Reliance Industries and equal the market cap of all 6 listed telecom operators in India put together.

BSNL needs Rs. 60,000 crore to expand its network and scale up infrastructure to add 10 crore GSM lines by 2010 and as such it is planning an IPO in India followed by listing at NYSE or NASDAQ.

But the question is whether there is enough appetite among Indian investors to absorb such a mega issue?. The answer would probably be yes especially considering the success of large IPO’s such as Reliance Power, DLF, Reliance Petroleum and FPO of ICICI Bank.

Also, considering that post-offer BSNL’s PE shall be 51.2 which would augur well considering other players in industry have similar valuations. Reliance Reliance Communications is at 52.9 while Idea Cellular has 57.8 while GSM leader Bharti Airtel has 34.1.

But BSNL has very strong fundamentals aided by 7.5 crore subscribers in India. In FY07, it earned Rs.7805 crore on a topline of Rs.39,750 crore but the only concern it has is that it lacks behind Airtel and Vodafone in GSM numbers.

Other positives for BSNL is the fact that it has large-scale passive infrastructure, a pan-India optic fibre cable network, cash reserves of Rs. 40,000 crores and prime real estate worth another Rs.40,000 crore.  Another factor which could boost its valuation is the value attributed to per subscriber and analysts even estimate the worth of BSNL to be over Rs.700,000 crore on the higher side.

But there are certain inherent issues which would remain with the company as being a PSU, it would always remain at the behest of populist Government policies and occur losses on account of its rural rollout due to ‘Universal Service Obligation’ clause. Also, since BSNL is absent from two biggest Indian telecom markets of Delhi and Mumbai, the valuation may see some downfall.

It is only matter of time, before India’s biggest telecom company becomes public which would aid it in getting the requisite funds and access to international markets for funds and expansion. The IPO would also signal the start of the much awaited merger of MTNL and BSNL to create a bigger telecom giant.