Verdict positive for serious players: Tulsian

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Verdict positive for serious players: Tulsian

In its verdict on 2G scandal, the Supreme Court announced that 2G licenses issued post 2008 will be cancelled. That's around 122 licenses and impact mostly the newcomers. SP Tulsian of sptulsian.com analyses the sharp reaction in the telecom stocks

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In its verdict on 2G scandal, the Supreme Court announced that 2G licenses issued post 2008 will be cancelled. That's around 122 licenses and impacts mostly the newcomers. SP Tulsian of sptulsian.com analyses the sharp reaction in the telecom stocks following the verdict.   

Q: Sharp reactions had played out already in names like Unitech and Rcomm. How do you read this for those specific stocks?

A: Definitely negative. The positive side is that spectrum got vacated for a re-auction.If you take the overall perspective, it negative for DB Realty , Unitech and Videocon Industries . I don't think there are any other listed players like Loop or maybe Swan, which has its reflection on Rcomm. That stock has seen correction. On the other hand, this can give Rs 1 lakh crore that can be factored in the form of receipts in next year's Budget estimate. But yes, things are not hunky-dory now in India. You cannot really get away with these kind of things.

Q: A word on the kind of reactions that you are seeing on individual stocks.

A: I don't think that one really expected that Unitech, DB Realty or maybe Videocon are going to lose. Specifically on Idea , Kumar Mangalam Birla has been maintaining that if anything is found wrong he is open to cancellation by the government. He will not have any objection. So one has to only understand the implications of that on Idea. Rcomm I think is more of a shadow of Swan. I don't think the economic benefits of that were reflecting in the share price of Rcomm. Now it is only the criminal liability which will get tried at the lower courts. I think the main telecom stocks have seen price corrections happening. I don't think even Rcomm is likely to fall further from hereon but difficult to take a call while Idea is really moving up and Bharti seems to be the beneficiary of all this cancellation process.

Q: You want to comment quickly on what it could mean for Reliance Communications?

A: I don't think  Sistema, Tata Tele and Rcomm are affected because of an unification. Only licenses issued after January 2008 have been cancelled and as rightly clarified by the company that all their prior licences remain valid. I have been maintaining that Swan Tele benefits have not really flown in and that will separately get examined. So except for unification of these three companies, Tata, Rcomm and Sistema, I don't think RComm will see  a lot of damage.

Q: You want to comment quickly on what it could mean for Reliance Communications?

A: I don't think  Sistema, Tata Tele and Rcomm are affected because of an unification. Only licenses issued after January 2008 have been cancelled and as rightly clarified by the company that all their prior licences remain valid. I have been maintaining that Swan Tele benefits have not really flown in and that will separately get examined. So except for unification of these three companies, Tata, Rcomm and Sistema, I don't think RComm will see  a lot of damage.

Q: Which are the specific exposures about which banks should be worried?

A: First one has to understand the Rs 23,000 crore exposure which you have said includes fund-based, non-fund based or both. Now take the case of the funding being made by the banks. I don't think the intangible portions of the enterprise or companies have been financed by these banks. If all these players get wiped out from the scene, the fact remains that Uninor or Swan have not really launched any of their services. So what is the tangible assets that banks are holding? Definitely all those loans will go sticky, but can they really turn bad? In our country everything is backed by a collateral, everything is backed by a personal guarantee. If you take the case of these three promoters - Unitech, DB Realty and Videocon, they are all well established players in their core business and they must have given some collateral and personal guarantees. So I am unable to accept that Rs 23,000 crore, which I presume must be fund-based, will really go sticky. Provisions of all that will come in next two quarters, three quarters and I am not disputing that. We can also suppose that TRAI may recommend the court that serious players like Uninor or Etisalat should be allowed to bid in the revised auction of the 2G. Now it seems a foregone conclusion. So I don't think the situation is really so grim. We are talking of Rs 5 crore sim cards where you have the number portability. So I don't think that one should really take a narrow view. Let's take the other side of it. It may send a very positive message to the overseas investors. If you are indulging any of these kind of assets, if the title of the original licences have come to a question I don't think that you can really protect the persons who have really played on or have taken stake in those companies. Ultimately it is their own risk. The Supreme Court will not examine the quantum of the amount involved. Supreme Court will examine the legality. They are not there to protect the bank's money or to protect the telecom service provider's money. So if you take the overall aspect, I don't think that things are really looking so grim at this stage.

Q: What's your sense? Will a new 2G auction really yield the same kind of money or people are going to shy away and therefore the returns will be much less?

A: Let's understand that the licensees which have been acquired by the domestic players were never serious players. The licences were acquired by them just to play on the arbitrage. They acquired the licences at Re 1 to sell it at Rs 10. So this is going to be a consolidation gain, but nobody can afford to overlook India. Just now we had 3G auctions. We see auctions happening at double or triple the rate government's reserve price. So I am not accepting this argument that we are not going to see the appetite for 2G, but there would not be a mad rush. But for players like Docomo or Uninor, who have already have their presence felt in India, will participate. But it will be premature to draw any conclusion on the kind of aggression that they will be going ahead in terms of financial numbers.