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| Kishore Chaukar, MD, Tata Industries |
It's simple. the tata group wants to
be in all aspects of the telecom business: basic, cellular, national
long distance (NLD), international long distance (ILD), and internet
and value-added services. And it is prepared to invest upwards of
Rs 6,000 crore over the next six years to do that. By 2006, the group
wants to have more than six million telecom customers and a quarter
of the overall market. Tata Telecom will focus on basic services,
and Birla-Tata-AT&T, pending a merger with BPL Communications,
will be an independent cellular service provder. VSNL and Tata Power
will lead the group's ILD, NLD, and ISP businesses. According to the
Tata Strategic Management Group, there should be 17 million cellular
subscribers and 69 million basic subscribers by 2006, although other
industry experts forecast a much bigger growth: about 50 million cellular
and 100 million basic. Says Kishore Chaukar, Managing Director, Tata
Industries, which speerheads the group's new ventures: ''The telecom
market is constantly changing, but the moment availability comes in,
the demand booms, and when prices go down, a new set of customers
comes in.'' It is this exponential growth that the Tatas want to cash
in on.
FUNDING THE FUTURE
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| Ishaat Hussain, Finance Director, Tata
Sons |
Over the next seven years, the group
will be spending more than Rs 10,000 crore in new investments. More
than two-thirds of it will be in telecom alone, simply because the
total bill for VSNL (including an open offer for an additional 20
per cent that the Tatas are required to make) will be about Rs 2,500
crore. Insurance will take away another Rs 600 crore, besides which
Indian Hotels will need money to fuel its overseas growth. The problem,
however, is that neither telecom nor insurance will be adding to
the cash flow. For example, the telecom business could take another
five years before it starts generating profits. Similarly, insurance
business (the Tatas have a tie up with AIG for both life and non-life)
doesn't usually turn profitable until the seventh year. So, where
is all the money going to come from? A good part of it from the
TCS IPO. Although only a 10 per cent of the company is to be floated,
at the current industry multiple of 30, it could mean Rs 3,000 crore.
Then, there are smaller companies that will keep getting sold and
generate some cash. Says Ishaat Hussain, Finance Director, Tata
Sons: ''That's a sensible thing to do, but that alone can't be the
driving force (for cash generation).'' Therefore, group companies
will need to tap their own accruals and borrow to supplement funds.
Hussain says that new investments will typically have a 1:1 ratio
of debt and equity.
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