Fine, it has caught Kerry Packer's interest (and his investments). But is that reason enough for a company with profits of Rs 90 crore and a clutch of me-too plans to be valued at Rs 10,000 crore?

By Ranju Sarkar 

Every day, just before he leaves home for work, and right after he reaches his office, Mahendra Singh Nahata makes it a point to pay obeisance to Hanuman, the Hindu monkey God. If it is good fortune that Himachal Futuristic Communications Ltd.'s (HFCL) ceo Nahata is praying for, then Hanuman may be the wrong member of the Hindu pantheon to address. For, the warrior god is known more for valour and asceticism-not the kind of divine munificence a Lexus-driving corporate chieftain needs. Yet, there's little doubt that somebody up there is all ears. For, what's been raining down on the Delhi-based telecom equipment manufacturer the past year is sheer manna.

First, a clutch of foreign and domestic investors vied with each other to pick up the company's Rs 745-crore private placement offer in February, 2000. Then, within days of that, Australian cricketer-turned-media-mogul Kerry Packer succumbed to the sales-spiel of Vinay Maloo-Nahata's nephew and the 39-year-old Chairman of HFCL-who had been playing snake charmer to Packer's deaf adder for six years. Paying Rs 1,450 apiece, Packer's Consolidated Press Holdings coughed up Rs 1,039 crore for a 9.1 per cent stake in HFCL. And a few months later, the US-based Janus Fund zeroed in on the HFCL scrip.

The entry of Janus - it is reported to have mopped up 8 per cent of the float - was a shot of steroid for HFCL, considering that the American fund has investments in only 250 companies across the world, and just three in India (Reliance Industries and Infosys Technologies are the other two). And in a significant climax to this tale of good fortune, Morgan Stanley Dean Witter-whose Morgan Stanley Capital Index (MSCI) is considered to be the gold-standard among FII-indices-dumped pharma major Dr Reddy's Laboratories and elevated HFCL into the MSCI.

Thanks to all the investor interest, the one-time stockmarket pariah-wallowing at Rs 59 in February, 1999 - is now a Dalal Street darling, orbiting at Rs 1,260. And Nahata and Maloo - the third partner, Deepak Malhotra, has just a 2 per cent stake, and looks after the Group HFCL's paging business-are worth nearly Rs 3,500 crore. In what could be a celebratory gesture Maloo recently shelled out a reported Rs 9 crore for an apartment with a view of the Arabian sea. Says a Delhi-based HFCL watcher: "It's amazing how quickly fortunes have reversed at the company."

Big Plans. But Real?

If things sound too good to be true, there is reason for them to. In 1999, half of HFCL's Rs 579-crore revenue came from its five-year-old turnkey projects business; another third from the sales of telecom hardware; and the rest from telecom software and components. The company does possess strengths in the hardware and turnkey businesses: it has few local competitors and larger transnational rivals can't match its cut-throat pricing strategy. But, is a company with Rs 90 crore in profits worth the Rs 10,000-crore value that the market places on it?

Research report after research report says yes. Analyst after analyst, like HSBC's Vijay Baoney (he believes cost and project-implementation skills endow HFCL with a great competitive advantage), says yes too. The reason? An estimated $15 billion is to be ploughed into telecom over the next five years. Nahata claims that by the end of this financial year, the company's topline will almost triple to Rs 1,500 crore. Besides, he argues, HFCL doesn't want to remain a mere hardware and turnkey services company. HFCL's greatest ambition is to be a diversified communications and media conglomerate-in other words, a convergence company. The projected investment? Rs 4,000 crore over the next four years. And the funds raised so far? Rs 1,800 crore.

The growth tapestry Nahata and Maloo have woven for this is elaborate. Three new joint ventures have been forged with the Packers in areas outside telecom. Consolidated Futuristic Solutions - where HFCL owns 51 per cent, CPH 30 per cent, and strategic investors, the rest-is investing Rs 100 crore (half as equity) to produce software (including animation), infotech-enabled services like call - centres, and embedded systems for use in telecom products. By Nahata's reckoning, three years from now the software venture will fetch Rs 500 crore in revenue.

Excel Net Commerce, a B2B e-commerce JV with an identical equity structure, will focus on network infrastructure, including payment gateways. Maloo claims the company's network will be content-rich and provide specialised services to companies in businesses like steel (Excel Net Commerce has formed a JV with isteel Asia, a Hong Kong-based steel portal) and agriculture.

The third JV, Nine Broadcasting India (NBI), is an entertainment company that's making aggressive moves. It has three hours of prime-time programming on DD Metro, a state-owned channel that reaches 80 million homes. By all accounts, it is a clever and bold move. Without making any investment in expensive broadcast infrastructure, the JV has managed to become a virtual broadcaster-even if only for three hours.

Nahata may deny it now, but media will likely be an area where the Packers would want to consolidate. For instance, the JV wants to eventually establish a presence in television and radio broadcasting and magazines. It's even talking about producing films and music and getting into interactive services.

And some time in the future, NBI is expected to plug into Himachal Infotel Ltd (HITL)-the basic telephony and broadband service provider in Punjab. The company is the only remaining fragment of HFCL's grandiose basic services dream. The Punjab circle-the company acquired the license for the circle from Essar Commvision-is a compact market for telecom, covering just around just 50,400 kms. The HITL project will cost HFCL Rs 1,190 crore (equity: Rs 534 crore; debt: the rest), for which the Industrial Development Bank of India has sanctioned a term loan of Rs 656 crore.

Maloo, who operates out of Mumbai and looks after finance and new projects, says that HITL is in the process of laying 2,800 kms of optic fibre cable, and that its customer acquisition cost will be comparable to that of the Department of Telecommunications (DoT). In Punjab, the company plans to offer both basic telephony and value-added broadband services such as cable TV, teleshopping, telemedicine, and telebanking. By 2003, HITL expects to have 5 lakh subscribers who generate Rs 900 crore in revenue. As this article went to bed in the second week of October, HITL had already launched its services.

Contd..

Issue Contents  Write to us   Subscriptions   Syndication 

INDIA TODAY |  INDIA TODAY PLUS | COMPUTERS TODAY
TEENS TODAY | NEWS TODAY | MUSIC TODAY | ART TODAY | CARE TODAY