MUMBAI: On 2 February, the market value of Reliance Communications, India’s second largest mobile telephony company crossed Rs100,000 crore.
The company may well be the latest beneficiary of the Hutch-effect: the race to acquire Hutch Essar, India’s fourth largest mobile telephony company has boosted the value of all telecom companies.
Since 6 December 2006, when new of Hutchison Telecom International’s willingness to sell its 67% holding in Hutch Essar became public, Reliance’s share has risen 6%.
In the same period the share of Bharti Airtel, the country’s largest mobile telephony company has risen 19.2% that saw the Bombay Stock Exchange’s representative index of 30 companies, Sensex, rise 2%. Even lesser stocks such as those of Tata Teleservices (Maharashtra) and Mahanagar Telephone Nigam Ltd have moved up, by 25% and 24%.
Both Reliance and Bharti valued at $33.13 billion are now among the ten most valuable companies in India in termsof market value.
“Reliance’s bid for Hutch Essar and the synergy of the buy-out with its plan of a nationwide GSM roll out has impacted its stock price in the last monthand half,” said R. Amarnath, anexecutive director at Centrum Capital, a Mumbai-based investment bank.
As of 2 February, Reliance Communications too achieved the distinction of being valued by the stock market at over Rs1 lakh crore ($22.73 billion).
Amarnath’s reference is to the plans of Reliance, which now offers mobile telephony services on a competing platform to move to GSM, a more widely accepted one.
Amarnath added that “the run up to Hutchison Telecommunications International Ltd’s sale of its stake (in Hutch Essar) has also had a rub-off on the valuation of Bharti Airtel.”
The interest of Egypt’s Reliance, Orascom Telecom, Vodafone Plc, the Hinduja Group, and the Essar Group in Hutch Essar is only one of the major factors driving the valuationof Indian telecom companies, especially those focussed on mobile telephony.
The other is the rate at which the market is growing. In December 2006, India’s mobile telephony companies added 6.33 million subscribers. The country ended December 2006 with a base of 145 million mobile telephony subscribers.
“The rally in telecom stocks is directly linked to the individual performance of the companies and the good performance of the industry,” said Sandeep Shenoy, a stategist at Pionner Intermediaries, a Mumbai-based brokerage.
Reliance’s net profit of Rs 771 crore for the three months ended December 31 was 35% higher than that for the preceding three months; the corresponding numbers for Bharti were 14% and Rs1,043 crore.