Anil Ambani	B.K. Modi	K.M. Birla
Ratan Tata	S.P. Hinduja

Talk about Indian telecom, and the first associations that tend to be drawn are with (not necessarily in this order): a. A huge subscriber base. b. High growth rates. And c. Frenzied bursts of consolidation. Talk to an investment banker, and of course it's the third association that will roll off her/his tongue in almost knee-jerk fashion. And why not? Over the past six months, there have been at least six (including Bharti) high-profile transactions in the domestic telecom sector, the big bang being of course Vodafone's 10 per cent buy into Bharti Tele-Ventures for Rs 6,750 crore ($1.5 billion) late last year. And there's promise of plenty more hectic M&As (mergers and acquisitions) ahead, as valuations continue to soar. Consider: Anil Ambani's Reliance Communications Ventures Ltd (RCOVL) could bring in a strategic/financial partner, Vodafone might want to up its stake in Bharti (at perhaps Singapore Telecom's expense), the Tatas and the Birlas may opt for a third partner in Idea Cellular (assuming they stop fighting soon), B.K. Modi might be just waiting for the opportune moment to sell a part of his stake, if not all of it, in Spice Telecom (he holds 51 per cent of its equity), and the Hindujas who hold 5.11 per cent in Hutchison Essar might think the time's ripe to cash in by selling to Essar Teleholdings.

Such deals might appear in the realm of speculation, but once you consider the global interest in Indian telecom-big names like Telenor, France Telecom, Sistema and Telstra are said to be eyeing the country closely-more M&As seems only a matter of time. Bharti-Vodafone in many ways was a landmark deal, and also a benchmark in terms of valuation, which could pave the way for other telecom MNCs to follow. "The real question is where else can you get a telecom play like India? It has huge subscriber numbers and robust ebitda (earnings before interest, taxes, depreciation and amortisation) margins, which makes it a very compelling story," thinks UBS Securities Managing Director and Chairperson (India) Manisha Girotra. While she is quick to admit that valuations are "rich" in the sector, she adds that subscriber numbers are clearly going the China way (China currently has a subscriber base of close to 400 million), which perhaps is the reason why foreign telco majors are so kicked about the India story. Over two million subscribers are added to the existing base each month and usage in terms of minutes too is on the rise. As Rajeev Gupta, MD of private equity firm Carlyle India Advisors, puts it: "Hitting the 300 million subscriber mark seems realistic." The total number of subscribers in India-wireless and fixed-is 134 million.

That obviously has not missed the attention of those who sold their holdings in some percentage or the other following the Bharti-Vodafone deal. C. Sivasankaran thought the time was right to sell his stake in Aircel lock, stock and barrel to the Malaysia-based Maxis and the Reddy family of Apollo Hospitals for $1.08 billion (Rs 4,860 crore). This deal came barely a year after Aircel came close to selling a 49 per cent stake to Russian operator Sistema for $450 million (Rs 2,025 crore). In that intervening period, Aircel had commenced operations in a few new circles, registering an added presence, arguably not large enough to see valuations more than double in a year. But that's the nature of the telecom stakes in India: They're very high, and still climbing.

The billion-dollar question today, though, is how much more steam is left in those already-heady valuations. "If you ask me, valuations will only increase," quips Modi, adding that going forward, value-added services could prove the determining factor. A few weeks ago, Telekom Malaysia picked up 49 per cent in Modi's Spice Telecom from financial investors for $178.85 million (Rs 805 crore approx.). Modi remains the controlling partner with 51 per cent. But for how long? Not very, if industry watchers are to be believed. With the government allowing foreign direct investors to go up to 74 per cent in telecom, it might make sense for Modi to sell. Try asking Modi if he will and he says cryptically: "The 51 per cent holding from our side will continue and we are ready to invest in the business. The issue is one of readiness to grow when the opportunity is there."

Huge subscriber numbers, high EBIDTA margins-close to 40 per cent in Bharti's case-and an eagerness to unlock value coupled with the global majors' yearning to get a foothold in the fastest growing telecom market point to plenty of M&A action in the days to come. For Indian telecom, the future is out there.

Going For Broke

Traders on Dalal Street are betting big on a long-term bull rally.

By Mahesh Nayak

Stockbroking on a high: Courtesy, bull run

Investment outlays in the Rs 75 crore range, acquisitions of Rs 250 crore-plus, projected headcounts that run into four digits, multinational corporations entering the business...it's all happening in the hitherto humble business of stockbroking. Perceived in the not too-distant past to be the purview of the dhoti-clad, pan-chewing punting fraternity, the current bull run brings along with it a fresh dash of excitement, action and glamour on Dalal Street. Consider: After partnering with a local name for close to a decade, Goldman Sachs of the UK will now go it alone, and just one of its operations will be broking. In the next six months, Citigroup will venture into retail broking. And Australian bank Macquarie has already kicked off its equities business.

But it's not just the blue-blooded global marques that are walking the talk. Home-grown brokerages, ranging from the higher profile Motilal Oswal to the lesser-known Kerala-based JRG Securities are thinking big. Boutique investment bank Ambit too is venturing into broking, and the Securities & Trading Corporation of India (STCI), till recently focussed on debt, took the plunge into equities by buying UTI Securities for Rs 265 crore. Existing players like Motilal Oswal and Edelweiss Securities are raising funds via placements to fund expansion plans (upcountry and internationally), and a few like Emkay Share and JRG are tapping the public for funds.

Clearly, for many of the new entrants, broking is one business that complements their entire bouquet of offerings. Take, for instance, the case of corporate finance firm Ambit. Manish Kanchan, CEO, Ambit Capital, says broking is a logical extension. "We realised that we were losing out on block deals in the secondary market. Also, we were not able to capture the value of secondary market operations for our NRI (non resident Indian) and HNI (high net-worth individual) clients." Ambit Capital, which has a presence in the major metros, plans to invest Rs 50-75 crore in the next three years for increasing its presence in tier II cities as well as in international centres like Dubai.

Meantime, institutional brokers too are taking the plunge into retail broking, a case in point being SBI Capital Markets, which has floated a new subsidiary, SBICAP Securities. Says V. Gopinathan, Managing Director, SBICAP Securities: "With retail investors increasingly taking to equities trading in a rising stock market, we had to enter into retail broking." SBI Capital is focussed on trading for FIIs (foreign institutional investors), mutual funds, insurance companies and banks. In the last six months, the brokerage has opened 30 retail branches and is planning to open 30-40 in the next year. Citigroup too is planning an entry into retail broking by the third quarter of 2006-07, and market sources reveal that ABN Amro too is thinking along similar lines. As is domestic financial services firm Enam Securities.

Oswal: He's factored in the "bad times"

The heightened interest in broking-primarily the retail part-is evident from the big deals happening in this space. G. Narayanan, MD of STCI, says the purchase of UTI Securities is worth every single paisa of the Rs 265 crore STCI has shelled out. "The intention to get into equity market was to de-risk the business model. If we had to develop and build something like UTI Securities, it would have taken a minimum of five to six years to get the scale and reach like them." Narayanan adds that he hasn't overpaid, as he's bought at 16-17 times earnings, when most other (listed) brokerages are trading at price/earnings (P-E) multiples of 20.

With so much action taking place at (arguably) the peak of the bull run, you have to wonder: What if the markets tank tomorrow? Will there be an overcapacity of brokerages? Most players are going by the bullish long-term trend for the market. Motilal Oswal, which recently acquired Peninsular Capital Markets in the south for Rs 23 crore, also has plans to grow market share, from 5.25 per cent to 10 per cent by 2010. And Chairman Oswal has factored in the "bad times. If the market tanks, we have already considered a volatility of 30 per cent. In fact, a fall will be good as the cost of acquiring talent will come down," he quips. For the moment though, brokers are making hay as the sun keeps shining on Dalal Street.