Btw, markets corrected sharply last week, falling by over 600 points from the highs of the week. It is no surprise that FIIs led the decline. They not only sold shares worth over Rs.1000 crore in the cash market but went short in the derivatives market by over Rs.5,000-6,000 crore. I think this a bull market correction, that is painful, but is likely to be short in nature. I think FIIs will soon turn out positive figures. Furthermore, domestic mutual funds are sitting on mountains of cash, raised in the last two months ended March 2006. See here and here.
So if the correction continues during the next week, I for one will be looking to add a few stocks to my portfolio.
One of the stocks that I recently purchased is Reliance Communication Ventures (RCVL). The company seems undervalued at current levels given that it has some 18 million mobile subscribers and is yet quoting less than half of Bharti Televentures value (of over Rs.70,000 crore).
Here are how the numbers stack up -
- Mobile subscribers: RCVL and BTVL - 18 million each
- ARPU: RCVL -Rs.412 per month, BTVL - Rs.470 per month
- Avg. minutes per user: RCVL - 547 mins, BTVL - 411 mins
- Mcap (as of 13 Apr '06): RCVL - Rs.33k crore, BTVL - Rs.71k crore
Points to think -
- Each of the two companies is adding around a million customers every month
- Given current rate, the two will have over 30 million customers by the end of current fiscal and some 38-40 million by FY08.
- Given the current ARPUs, expected revenues from just the mobile business are likely to be around Rs.20,000 crore. Adding another Rs.5-7,000 crore (a conservative estimate) from RCVL and BTVL's other businesses (such as broadband, landline, ILD, etc.), total revenues are expected to be around Rs.25,000-27,000 crore.
- PAT margin of 20% (which is what BTVL currently earns and I expect RCVL would earn the by end of this fiscal) would yield a NPAT of Rs.5000-5400 crore. A discouting of 15 times for a fast growing business such as telecom should result in these companies attracting valuations of close to Rs.75-80,000 crore.
- BTVL (Rs.71,000 crore) is currently trading close to this, whereas RCVL is trading at a significant discount (at Rs.33,000 crore).
Conclusion - RCVL offers good upside with little risk on the downside.