Guest Lecture By Mr. Ajay Tyagi, UTI

The next in the series of guest lectures came in the form of a highly informative and interactive session on 'Valuation Models in the Telecom Industry' by Mr. Ajay Tyagi, UTI, on 23rd August 2002.

The discussion started with the history of telecom sector and Department of Telecom as the licensor and the regulator. Then came TRAI (Telecom Regulatory Authority of India), which gives recommendations on cellular charges, etc to be followed by the operators.

As regards the players in the industry, initially it included BSNL, VSNL and MTNL. As of today a number of private players have entered viz Bharti, Hutchison, Reliance, Tata, AT & T, etc. and these players saw and tapped the immense potential in India in the field of Mobile Telephony.

With the industry growing, it is required to value the various projects, companies etc in the industry.

The following valuation models were discussed:

1. P/E: Price - Earnings Ratio
It is the ratio of the market price and the earnings per share of a company. But while using this, it needs to be seen if the market itself is undervalued or overvalued

2. P/E/G: Price - Earnings - Growth
It takes into account the growth potential of a company, as measured by Compound Average Growth Rate for next few years. It is required for long - term investment strategy.

3. EV/EBITDA:
Enterprise Value - Earnings before Interest, Taxes, Depreciation and Amortisation.
Since the income can be derived form various sources adjustments need to be done and enterprise value needs to be seen against the operating income.

4. EV/EBIDTA/G:
For comparisons across various companies, the growth potential need to be taken into account.

For telecom industry specifically, following valuation models are used:

1. EV/Subscribers:
Enterprise Value per Subscribe need to be seen while evaluating deals in case of acquiring stakes, specifically. It should be viewed in the light of ARPU (Average Revenue Per User).

2. EV/Subscriber/ARPU:
Since Average Revenue Per User is critical to performance in the telecom industry, it needs to be taken into consideration along with EV and Subscriber base.

3. EV/Radial Km:
In evaluating National Long Distance Operators, it is difficult to calculate the subscriber base. Therefore, the Enterprise Value is seen along with the Radial Km of area that is serviced by the network.

The session was followed by an informal tete - a - tete between the guest and the students.