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DoT plan not seen affecting Himachal

NetScribes/Ganesh Ramamoorthy

A Department of Telecommunications (DoT) plan to bar Himachal Futuristic Communications Ltd (HFCL) from the next round of bidding for basic telecom services is not seen affecting HFCL. On the contrary, analysts see it as a positive development for HFCL, given its recent efforts to transform itself into a systems integration player.

"DoT's plans will not have any impact on HFCL because it has moved out of basic telecom services and is focusing more on systems integration, which is where its real strengths lie," said an analyst with a Mumbai-based securities firm.

"It will be actually very negative for the stock if HFCL bids for the basic telephony licence as it increases not only the company's liabilities but also its revenues from group companies," he added.

Components, which account for 60-70 per cent of the total telecom network project cost, make up 60 per cent of HFCL's revenues. Lower manufacturing costs also give the company an edge over competitors like ITI and HTIL.

"Given its competitive advantage in the telecom segment, HFCL is better positioned as a systems integration player than as a basic telecom service provider," the analyst said. "It is also very good for the scrip."

Opening from its previous close of Rs 1,267.40 on the Bombay Stock Exchange (BSE), the HFCL scrip surged by more than 5 per cent on Thursday afternoon before dipping to a low of Rs 1,274.80. At 2:50 pm, the scrip was trading at Rs 1,293.25 amid huge volumes of 3.9 million shares. On Wednesday, the scrip had hit the 8 per cent upper limit.

Dealers attribute the continuous buying interest in the counter to talks of the company entering into an alliance with a global telecom major. HFCL officials refused to comment on the issue.

Newspapers reports on Thursday said DoT planned to bar HFCL from bidding for the basic telephony licences because of an ongoing legal tussle between the two after HFCL failed to pay the first installment of licence fees for the four circles in which it operates.

Despite the development, analysts remain positive on the HFCL scrip in the short to medium term. In the long term, however, analysts are concerned about the high client concentration and high group revenues.

At its current market price of Rs 1,324, the scrip is trading at a forward earnings multiple of around 48 times with an estimated EPS of Rs 28 for FY2001.

"The valuations look quite attractive, given HFCL's capabilities as a systems integrator and a low-cost manufacturer of telecom equipment. It stands to gain from the huge investments estimated to come into the telecom segment," the analyst said.

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