Hutchison rides Indian mobile boom

PUBLISHED : Tuesday, 30 December, 2003, 12:00am
UPDATED : Tuesday, 30 December, 2003, 12:00am

An explosive market is creating room for growth for the Hong Kong conglomerate

A US$2 billion plan by Hutchison Whampoa to list its Indian mobile-phone business comes amid a booming market and growing investor interest in the country's telecommunications sector.

The shares of Bharti Tele-ventures, India's No1 mobile-phone service provider, have leapt more than 235 per cent since the company listed in January this year.

This has given it a market capitalisation of US$4.34 billion - or about $940 per subscriber - and portends well for the Hutchison offer planned for New York, London and Mumbai. Hutch, as the company is known in India, would be just the second mobile-phone company to list there.

There is little doubt as to why investors are excited by India's mobile-phone market. Subscriber growth has climbed more than 100 per cent over the past three years.

In the first 10 months alone, subscriber numbers jumped 134 per cent to 24.59 million. Last month, 1.38 million customers signed up for services - setting a monthly record.

But despite the torrid growth, there is still room for more. Just 5 per cent of India's population owns a mobile-phone, compared with 19 per cent in China and 60 per cent in Europe.

'The [Hutchison] issue seems pretty big. It would sell on the mobile boom story similar to China a few years ago,' ICEA Securities analyst Betrand Chui said.

'But the industry is also very competitive, and we see price wars in India just like in Hong Kong.'

GSM is the predominant mode of mobile communications in India, with 20.7 million subscribers compared with 7.56 million for CDMA, according to figures from the Cellular Operators Association of India and the Association of Basic Operators.

Hutchison, which operates GSM networks in 11 of India's 22 service areas, is no stranger to the country's rapid development. Its mobile-phone operations - four joint ventures, one with Max India and Fascel and two others with Essar Group - had 2.9 million subscribers in August for about 15 per cent of the market, according to HSBC Securities.

But with the market wide open, competition is growing tough, with Bharti proving a formidable competitor.

The company, which includes Singapore Telecommunications as a major shareholder, had 4.61 million subscribers in September and network coverage in 21 of India's 22 service areas.

Hutchison is neck and neck for the No2 spot with state-owned Bharat Sanchar Nigam (BSNL).

Meanwhile, fixed-line giant Reliance Infocomm is offering cheap services similar to xiaolingtong in China, while smaller players such as MTNL and Tata Teleservices fight to grow market share. Hutchison's successful strategy has been to focus on large cities, which is why its services are available in just half of the country's call service areas.

In addition to organic growth, there is the possibility the company may grow its business through acquisitions.

Press reports over the past year suggested it might be interested in buying small Indian player Escotel, now owned by Hong Kong-listed First Pacific.

An analyst at a European brokerage said: 'Hutchison's position looks good, and there are lots of tremendous growth opportunities.'

A listing would put the company on solid footing to grow further, he said, adding Hutchison needed about US$350 million for network expansion in the country.

It is not clear, however, how much a listing will bring in for the company: its Indian mobile business has yet to turn a profit.

In its interim results, Hutchison said earnings before interest and tax (ebit) fell 7 per cent due to start-up losses for three new operations. Excluding the losses, ebit growth would have been 33 per cent to an undisclosed figure.