November 17, 2005


BSNL's valuation

According to Mr Sunil Mittal, BSNL is worth $30 Billion. [1]

Let's analyze some numbers.

In fiscal year 2004-2005, BSNL posted [2] a profit of Rs. 10,183 Crores on revenue of Rs. 36,000 Crores which approximately translates to profit of $ 2.2 Billion on revenues of $ 8.8 Billion. So, Mr Mittal values BSNL at 13 times its profit (also called PE ratio of 13 in Dalal Street parlance) and 3.4 times revenue.

How about his own company? In the first half of fiscal year 2005-2006 [3], Bharti logged a revenue of Rs 961 Crores on revenues of Rs 5038 Cr. If similar numbers are to be taken for next half, we arrive at Rs 2,000 Crores of profit on Rs 11,000 Crores revenue. ie. profit of $ 450 M on the revenues of $2.5 B

Recently, Vodafone picked up 10% stake in Bharti for $1.5 B, which gives Bharti valuation of $15 B. This valuation is 33 times the profit and 6 times revenue.

In comparison, BSNL's valuation look very conservative. But fine print says, BSNL earned Rs 5000 Crore as ADC.

What is this ADC?[4]
All telecom service providers treat roaming calls as premium service and charge you outrageously high (monthly rental plus triple the normal call charges). To start with, this is ridiculous, at best. Technology has been enslaved by some invisible geographical boundaries. BSNL said, we're fine with this tariff structure, provided we get a cut in it - Rs 0.30 per minute for national long distance calls and Rs 3.25 for international calls. This cut is Access Deficit Charge (ADC).

Thanks to telecom cartel, BSNL earned a profit of Rs 5,000 Crores without carrying a single byte on its network!

Coming back to the original topic, is the valuation of $ 30 B reasonable? A sarkari company grown to this size due to sheer monopoly and political protection can only bleed down the road, given the super-heated competition it has to face. So, $30 B is reasonable.

Govt can test the waters by off-loading 10% stake in the market via IPO. That would be the biggest ever IPO surpassing that of ONGC. Then, may be Govt can sell 20-30% stake to global telco majors at a premium. Govt has a great opportunity to make a killing in this bull run. Who knows, BSNL may get valuation much higher than $30 B.

Pipe dream, you may say! Blasphemy, Left will scream.

You never know. Dreams, however wild, can come true someday.


[1] Mr Mittal's musings - Sell 50% of BSNL for $15B.

[2] BSNL's 'managed' profit numbers.

[3] Bharti's financials

[4] ADC explained by TRAI

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