Mumbai: The managing director and head of investment banking at JPMorgan India Pvt. Ltd, Vedika Bhandarkar, had a close look at the telecom space in the firm’s role as adviser to NTT DoCoMo, Japan’s biggest mobile phone operator, on its purchase of a 26% stake inTata Teleservices Ltd for $2.7 billion.
In an interview with Mint, Bhandarkar explains how the deal fell in place and how the two parties arrived at the relatively high price, given the backdrop of a liquidity crunch across global financial systems that has stalled such transactions and caused company valuations to slump.
Setting trend: JPMorgan India managing director Vedika Bhandarkar says there could be many more transactions across sectors between Indian and Japanese companies after the NTT DoCoMo-Tata deal. Asesh Shah / Mint
How did you arrive at this valuation?
You don’t do valuations based on one single parameter. You look at it in the context of a bunch of factors. At the very high level, it starts from the opportunity India presents, including the new subscriber rate and the growth that you expect in the telecommunications market in the next few years.
Then there was this opportunity to partner with the most respectable group. Since this is not a buyout, whom you partner with was very important—both to DoCoMo as well as Tatas. The company you are getting into is also important, whether it is a start-up or an established player. Here you have 30 million customers, network rolled across the country, full management in place, a brand which is incredibly powerful in the Indian context.
Then you make some assumptions on how this business will grow in the next 5-10 years and you estimate how the business will pan out. These are all the parameters on which the valuation was arrived at.
How did you bring these two companies together? What are the synergies?
These two groups have known each other for a long time, just being large business houses. Tatas had a lot of respect for DoCoMo’s technical prowess—known for being on the cutting edge of all telecom innovations. Now, I remember going for a meeting in Tokyo and one of the clients said Mr. (Ratan) Tata is a longtime friend of Japan. So, there was lot of respect from both sides. Both the groups, from the beginning, were looking for strategic partnership. That itself was a meeting of minds.
With three new players set to join the Indian telecom space, what changes will the competition bring?
There could be another round of consolidation. At the end of the day, telecom is a scale game. If we look at telecoms across the world, there is a long period of investment, where everybody is making large investments, whether in rolling out passive or active infrastructure. You need a nationwide presence and everybody won’t be able to become a nationwide player. Competition is pretty high. So, if I were to make a guess, if after the next five years will we have 11 players..., I doubt.
This is the second largest inbound deal this year in the Indo-Japanese corridor. Will there be more such deals?
Japanese companies across sectors could look at similar deals. The theme we saw there (in Japan) among companies is the need for increased exposure to emerging markets. India is right up there in their list. There could be many more transactions between Japanese and Indian companies.
For this transaction itself and otherwise, we spent a fair bit of time in Japan. In one of the trips, I met some 15 to 20 companies, across sectors. It was really interesting to see how much interest they have right now. It’s not just India but all the high-growth market in the world. It is not surprising because Japan is a matured market, the growth rate there is limited.