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TELECOM Telecom's Toreador Twelve big circles, 8 lakh subscribers, and interests across the telecom spectrum. Sunil Mittal's empire is spreading far and wide. But can he raise big bucks to fuel his company's growth? By Suveen K. Sinha
Voluble and suave, Sunil Mittal is rarely caught at wit's end. But a few weeks ago, sitting at the dinner table at home, he was blushing furiously to a question popped up by his two school-going children. Intrigued by their father's ignorance of a show his cellular phone company, Bharti Telecom, was hosting in Delhi, the kids wanted to know if he actually ran the 15-year-old company. But, then, things like marketing promotions (or even changes in tariff rates, he admits) aren't exactly on top of the 44-year-old CEO's mind. In fact, the past few weeks, he has kept a whirlwind schedule, striking a deal in Calcutta, tracking bids for the fourth cellular licences across 21 circles in India, taking a final call on whether or not to bid for the state-owned Videsh Sanchar Nigam Ltd (VSNL), and sounding off investors in his closely-held company to keep their cheque books handy. The climax came on July 16, when Mittal sealed a deal to buy the B.K. Modi Group-promoted Spice Cell's cellular licence in Kolkata for $90-million (Rs 423 crore). Later that evening, the winners of the bids for the fourth cellular licences were announced, and Mittal had swept the show with a Rs 497.61-crore bid for licences in Mumbai, Tamil Nadu, Kerala, Uttar Pradesh (West), Haryana, and Kolkata. He had bagged Madhya Pradesh in the first round itself. (Subsequently, though, VSNL's employees obtained a stay on the bidding process, peeved at the PSU's exclusion from it, while Mittal has withdrawn from Kolkata after acquiring Spice.) Thus, in less than a decade after the son of a Congress-mp from Ludhiana made his cellular foray, his telecom empire is by far the biggest of all new entrants. He has licences to offer cellular services in 12 states, and the option and interest, respectively, to pick up BPL-US West's licence in Maharashtra, and that of Essar in Punjab-both are key markets. That apart, he has fixed line services in Madhya Pradesh, with the option to do so in eight more states; is one of the only two companies-the other is Reliance-in the running for a licence to operate domestic long distance services in partnership with Singapore Telecom; is implementing a $650-million submarine cable project connecting Mumbai with Singapore via Chennai, again in partnership with Sing Tel. But that's not all. He also plans to set up a 35,000-km optic fibre back bone across the country to go with an existing 10,000 km one; has set up Internet gateways in eight cities; operates comprehensive telecom services in Seychelles; and plans to get into international long distance telephony once it is deregulated in April next year. Back in his Delhi headquarters-and fresh from his first good night of sleep in seven days-Mittal appears to be on cloud nine, just that he won't admit it. ''There is no party time here. We are busy now,'' says he. Too Big A Bite
He had better be, because clawing his way to the top of the telecom heap may prove to be the easier part of his strategy. It is staying on there that will test Mittal's mettle. The biggest challenge is bankrolling his mammoth projects. While Mittal says he needs only Rs 5,000 crore to implement all his projects, BT's estimates put the figure at nearly double of that (see Big-Ticket Investments). While in the past Mittal has proved himself capable of stretching his pockets, this time round, the funds may be hard to ratchet up. ''On the strength of his current core operations (cellular services in Delhi, Karnataka, Andhra Pradesh, and Chennai), it will be difficult to raise all the money he needs by any stretch of valuation,'' says a rival, who would not be named. Mittal, of course, is unfazed by such scepticism. By 2004-05, he plans to more than quadruple his company's revenues to Rs 5,000 crore. Besides, of the Rs 5,000-crore investment (Rs 3,000 crore in equity and the rest debt), Rs 3,000 crore would be deployed by the end of August this year. His backers include Singapore Telecom, a telecom gorilla with $25 billion in market capitalisation, and Warburg Pincus, one of the largest private equity funds in the world. In May this year, the two investors pumped in $200 million (Rs 940 crore) each in equity into Bharti. Another $50 million (Rs 235 crore) came from AIF Funds Management, International Finance Corporation, and New York Life. The investments gave Bharti Televentures, the services holding company, a valuation of $2 billion. More importantly, partner equity has created ample room for Bharti to leverage its balancesheet. Consider: the total investment by the group so far stands at Rs 5,409 crore, of which only Rs 1,106 crore is debt and the rest equity, giving it a debt equity ratio of 0.26. ''We have always had huge cushions of cash,'' says Mittal. ''How many people can seal a $90-million acquisition (of Spice) in 48 hours?'' But chances are that more equity, than debt, may be raised in the short term. Plans of an IPO have been finalised, and the target is to raise between $200 million and $250 million. Big-ticket loans may happen when Bharti begins investing in its international long distance services, which will be opened up to private players on April 1, 2002. ''Raising equity should not be a problem as long as Mittal is willing to dilute his stake,'' feels Vimal Bhandari, Executive Director of Infrastructure Leasing & Finance Corporation. Winning The War
Bharti's valuations, investor confidence, and liquidity will all depend on Mittal proving that he hasn't overpaid for any of the circles, and making money on his operations. At least there's one big group that feels Bharti may be on shaky grounds. Reliance-which, in the second round of bidding for the fourth licences, pulled out of all but one (Kolkata) of the 15 circles it had staked claim to in the first round-maintains that all the 15 circles together are worth only Rs 800 crore. In contrast, Bharti's winning bid was of Rs 497.61 crore for the seven circles. While there hasn't been any official statement from Reliance on this, insiders say that there isn't much value in these circles beyond what they estimate, because another Rs 3,000 crore will have to be spent on the roll out of the networks. And then there is the cost of acquiring subscribers, which could be as high as $200-250 (Rs 9,400-11,750) per head. Others, however, say Reliance's move could well be influenced by its plans to offer wireless in local loop (wiLL)-based mobile services extensively in the country, using its fixed line licences. Therefore, it makes little sense for the company to acquire another set of licences for GSM-based cellular services. In any case, competition promises to be intense for Bharti. Past June, even as Mittal was working out the blueprint for his fourth licences, his competition worked quietly to gang up against him. The Birla-AT&T-Tata combine joined hands with BPL Communications to create a formidable entity, with about 24 per cent of all cellular subscribers in the country. Having emerged the top contender for Delhi's fourth cellular licence, the combine is all set to take on Bharti on its home turf. On the other hand, Hutchison-builder of the formidable Orange brand in the UK and India's largest cellular operator until now-is raring to cross swords with Bharti in Andhra Pradesh, where Batata-BPL is already in the fray. In Chennai and Karnataka, it will be either BPL or Hutchison-they bid neck-and-neck in the second round-giving Mittal his run for the money. Worse, Hutchison could invade the Karnataka market by snapping up Spice's licence for the state. And while Reliance may have crashed out of the fourth licences, it is on course to win the Kolkata circle-Bharti's new $90-million home. 1
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