Corporate: HFCL re-dials into a new tomorrow

CORPORATE
HFCL re-dials into a new tomorrow

With Kerry Packer's Consolidated Press Holdings investing Rs 1,000 crore in the telecom equipment company, this may be its only chance to succeed.

By R.Sridharan

Mahendra Nahata likes it big. That's why the hi-profile visitors to his March 25, 2000, dinner party at Delhi's Ashok Hotel were not surprised by the blockbuster extravagance. Even as pop singer Angela Amenda and dancer Shiamak Davar enthralled the audience from a specially-built psychedelic stage, the likes of Amitabh Bachchan, Anil Ambani, Adi Godrej, and Ajay Devgan hob-nobbed with Nahata and his friends.

But, then, Nahata had every reason to celebrate. A fortnight earlier, the Australian cricketer-turned-media baron, Kerry Packer-a friend of 6 years of Nahata's partner, Vinay Maloo-had picked up a 10 per cent stake in their company, Himachal Futuristic Communications Ltd (HFCL). At Rs 1,450 a share, the Packer company, Consolidated Press Holdings (CPH), paid Rs 1,039 crore. In fact, the dinner party had been organised in honour of the Packer family.

Also, a few days earlier, the telecom equipment manufacturer-which, in August, 1995, had shocked the telecom industry with a Rs 85,925-crore bid for basic telephony rights in 9 circles-had mopped up Rs 735 crore through a private placement with foreign and domestic investors. Flush with cash, Messrs Nahata and Maloo are talking of picking up the threads of their dreams for HFCL. On top of their wish-list is a foray into e-Commerce software and services.

Pitching for convergence

Let's get this straight: HFCL's earlier bid to get into basic services is dead. All the 4 circles-Delhi, Western Uttar Pradesh, Haryana, and Orissa-where it got the operating rights, have been given up. But now the company is eyeing the licence for the Punjab circle, bagged by Essar Commvision. The Rs 1,200-crore project will need an equity infusion of Rs 550 crore, of which HFCL will chip in with half, and an as-yet-unlocated partner the balance. The remaining sum will come in the form of debt.

Why Punjab? ''It's among the top 7 basic services markets,'' explains Manish Srivastav, 30, an equity analyst with the Mumbai-based SSKI Securities. And that would mark another step in Nahata's bid to transform HFCL into a convergence company of the New Economy. Its new strategy: consolidate the telecom equipment and services business; kick-start operations in Punjab; and launch e-Commerce software and services. ''Our focus is synergistic,'' says Nahata.

The company has decided to set up 2 joint ventures with the Packers, for software and e-Commerce. While HFCL will have a 51 per cent stake in both, the Packers will hold 30 per cent each, and the remaining will be distributed among venture capitalists and employees.

The software venture will focus on embedded software, animation, gaming software, financial services, and infotech-enabled services. The idea is to capitalise on the 400-strong army of telecom engineers that the company employs. Says Maloo: ''The Packers have strength in entertainment, they are investing a lot in telecom, and know the Hollywood market.''

The gameplan for the e-commerce venture is unclear, although Nahata says that it will be both an access and contents provider. Intended to be a payment gateway with a top layer of a b2b portal, it will host a slew of industry-specific suites. The fact that HFCL is a late entrant does not faze Nahata, who is banking on CPH's tie-ups with players like e-Bay and Microsoft.

But skepticism abounds. Says an HFCL watcher: ''Sure, they have raised money, but their plans seem modest.'' That's because a fourth of the Rs 1,700 crore will be used to repay debt, and another Rs 300 crore to meet the company's working capital needs (see chart).

Also, HFCL has been prone to controversies. In its heydays, it was linked to the former telecommunications minister Sukh Ram. And in October, 1999, it hiked its stake in finance company Investment Trust of India from 30 to 67 per cent. Investment Trust of India owns almost half of the Chennai-based Kothari Pioneer Asset Management Company, which was rumoured to have pushed HFCL's stock-price up in the market. The skeptics point to the astonishing growth in the stock-price from a 52-week low of Rs 50 to Rs 1,710 (on April 3, 2000).

Despite the doubts, the convergence tack is a sound one. Says Anil Joseph, 27, Manager (Telecom Practices) of the Mumbai-based Frost & Sullivan: ''Although the valuations of telecom companies are on the higher side, Net-over-cable will dramatically change the market in India.'' Following the 1995 fiasco, it was HFCL's equipment and turnkey projects businesses that kept the company afloat. It now plans to expand the projects division's expertise into network planning, engineering, and installation.

Expanding capacities

The company also wants to expand its equipment capacity, and invest in R&D. The budget: Rs 150 crore, of which Rs 100 crore will be used to increase the capacities of its fibre optic cable unit in Goa, and the equipment facility in Himachal Pradesh. ''The idea is to become stronger,'' says Maloo.

But how do the Packers gain from the partnership? Nahata says that Packer feels that HFCL is an ideal vehicle. Already, Packer's $250 million venture capital fund has picked up stake in 4 infotech companies. But CPH's interest may not be confined to e-Commerce alone. Once the print media is thrown open to foreign investors, it might make a foray there too. Denies Nahata: ''We are not looking at media opportunities.'' There's no denying, though, that HFCL knows just how to make the right connections.

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