Stocks
High hopes around Tata Communications

From delisting to potential restructuring, investors are betting on a variety of triggers for the stock to rally

A host of hopes such as delisting, settlement with the government, quicker turnaround of its South African business (Neotel), potential restructuring of Tata Group's telecom business, and the fact that it opted out of expensive broadband wireless auctions is creating interest around this company.

Tata Communications' stock price is in a good positive trend. Market punters are talking about a target of Rs450 (which means they expect more than 63% retracement from its previous high of Rs540 in August 2009). For now, from a low of Rs230 in early June, the stock has retraced almost 24%. The general consensus among punters is that if it crosses Rs303 and holds, it will be on its way to Rs350. The stock has already run up to Rs292.

The big rumour around Tata Communications is delisting (despite the government dithering on the 25% public holding norm). Promoters including the government hold about 76% of this company while LIC holds 9%. Market players have accepted that the land bank (773 acres, worth Rs8,000 crore-Rs10,000 crore inherited when it purchased VSNL) that is with Tata Communications will go to the government (although broker research indicates that the government is entitled to 51%). So the speculation is that Tata Communications will work out a deal with the government whereby they get the government's stake at a reasonable rate with minimum fuss and let go of the land bank claim in return. In any case, if the government and Tata Communications do arrive at a settlement on the land as well, this will be a further upside. The dispute has been on for almost eight years now and has remained in limbo. In 2002, the government decided to keep out 773 acres of surplus land owned by VSNL out of the sale.

The fact that Tata Communications has moved away from the Broadband Wireless Access (BWA) auctions is also seen as a big positive by investors. Tata Communications is planning to spend Rs10,000 crore over FY11 on voice and data solutions. But now that BWA is not in the picture, capex should stay at previously-announced levels and the next big trigger is expected to be Neotel's turnaround, in which Tata Communications has a majority stake.

Neotel is a South Africa-based communications network operator. It provides voice and data services for businesses, wholesale network operators and providers and consumers.

Another potential trigger for this stock is the restructuring of all the telecom businesses in the Tata Group. Rumours about a merger, between Tata Teleservices (Maharashtra) and Tata Teleservices, has been doing the rounds already. However, Tata Communication's management has said that there is no fixed targeted time for such a restructuring, if at all.

For Q1FY11, Kotak Mahindra Group expects Tata Communications (standalone) to post net sales of Rs870 crore and a profit of Rs14.6 crore while CLSA Asia-Pacific Markets expects this to be Rs880 crore and Rs29.9 crore respectively. HSBC expects it to post (consolidated) net sales of Rs2,860 crore and a net loss of Rs200 crore while Bank of America Merrill Lynch expects Rs3,000 crore and Rs390 crore. In general, long distance services core business pressures are expected to continue. In addition, this company is still plagued with high interest costs.

Tata Communications' business includes submarine cable networks, a Tier-1 IP network with connectivity to more than 200 countries across 400 points-of-presence (PoP), and nearly one million square feet of data centre and co-location space worldwide. It operates in enterprise data services, global international voice, has investments in operators in South Africa (Neotel, loss making), Sri Lanka, and Nepal (United Telecom Ltd).
 

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Come Sept., ULIPs will become less attractive than traditional plans. Who gains, who loses?

Under the new regime on ULIPs that is supposed to be in place from 1st September, private insurance companies would lose out to LIC

Unit-linked insurance plans (ULIPs), the mainstay of insurance companies, would become less attractive from 1st September. The Insurance Regulatory and Development Authority (IRDA) has set out new norms for ULIPs that mean lower commissions and lower surrender charges, which insurance companies bemoan may be good for the consumers but would deal a body blow to the insurance companies.

Since the new norms were announced, it is widely assumed that insurance companies would now prefer to sell traditional plans such as moneyback and endowment policies. But if that is so, it would also alter the competitive landscape. Not all companies are fully geared to sell traditional plans as well. Life Insurance Corporation of India (LIC), the oldest and largest insurance company, has been selling traditional plans for decades before the advent of ULIPs and its selling machine is
well-oiled to sell such plans. On the other hand, the private insurance companies are at a serious disadvantage in this regard.
"LIC has a different model with a large network of development officers (DOs) and a huge network of agents, which can engage the customer and explain to them the intricacies of traditional plans. No private insurance company has this," says the marketing head of a large private insurance company. 

"The private insurance companies are comfortable selling ULIPs, which are far easier to sell. All that our agents need to do is explain that part of the money goes into the stock market and one gets an insurance cover along with it. It is much more transparent than traditional policies," the source from the private insurance company added.

This is why ULIPs have, by far, been the top-selling product for insurance companies in the past five years. Now, with the market having to shift gears and sell more of traditional plans, the selling process and strategy will have to be different. "In this, LIC will be at a significant advantage," concedes the source. Through its network of eight zonal offices, 100 divisional offices, over 2,000 branch offices and one million agents, built over 52 years, LIC is by far the most well-versed in selling traditional plans which are more opaque and so need customer attention and engagement. LIC agents can do this far better than private insurance companies. "LIC's model of having a network of development officers allows them to engage the customer much more. A DO's job, while selling policies, is also training of agents and meeting prospective clients. Private insurance companies don't have such an extensive, well-oiled system. They rely more on younger sales people and these people tend to change jobs more often. LIC's DOs don't quit their jobs as often, with the result that customer relationships are much stronger," says an LIC source.

It remains to be seen whether private insurance companies are able to quickly change their model and come back to the growth track. But to follow LIC's model would be expensive and time-consuming and having invested hundreds of cores of capital with no returns in sight so far, it would be hard for them to engage in another round of intensive long-term investment. This is especially critical because insurance companies are now planning public offerings. They would have to go the market with a partly broken business model.
 

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COMMENTS

A

6 years ago

EAST OR WEST LIC IS BEST NORTH OR SOUTH PRIVATE ,S ARE OUT

chirag

6 years ago

i have gone through lots of comment of people,and observe that there are lots of people have got hurted due to this article but the fact is fact lic is best, and will always be the best

Rakesh Kapoor

6 years ago

Insurance is never bought for its beauty , there is no question of gain or loss ;in ULIP Risk is borne by Investor.

R Srinivasan

6 years ago

Tradional plans are non-transparent and with the lowered interest rates, the returns will not be attractive. Since the ULIPs are going to be benefitting the clients, they will prefer ULIPs to traditional-Hence despite new guidelines ULIPs are going to stay and interest customers

Keshav B Bhat

6 years ago

Dear all,
Can you tell me when you buy any products in the market do u buy it after going through the usefulness , reliability andd suitability of the product to your nees and affordability of the same? or do you buy enquiring what amount goes of the material, what amount goes to the distributor, what amount goes to market it etc?
Then why this hue and cry on financial products? why the people deal in financial products are treated as cheats eventhough good number of them work for the benifit of their clients by giving good advise according tne need of the client and service them on the related matters. Why the people who has benifeted by these products and their viws are not published?
regards,
Keshav B Bhat

Shrinivas Madwanna

6 years ago

LIC also has the best force for missselling.Also the products are out dated so in the long run private players will gain.

Rakesh Malhotra

6 years ago

Nothing is going to happen. Agents were befooling public and now also they will befool. In ULIPS no body used to tell the charges and now they will not tell about the charges of the policies in the first 3 years and will again befool the public. Basically the investor is always at the receiving end. If you talk about pvt. insurers their agents are knowledgeable and well trained as compared to govt. agencies where in their agents manuplates the figures on returns.

Narendra Doshi

6 years ago

Private Insurance companies pl put your thinking hats ON & face the competition. It seems LIC wants to have another race after the recently fought ULIP race. Good luck.

Duraisamy P

6 years ago

why all the charges being deducted in the first and subsequent years in the traditional plans not being disclosed, It should be made mandatory for the traditional plans also as for ULIPs. why no body talks on that. Please address IRDA to react on this .

PIYUSH SHAH

6 years ago

certainly LIC will have advantage,as they always believe in long term relationship with there clients,which in any case private insu.people do not have.also with media in last few months pvt.insu. image is spooiled as usual.

Rakesh Kapoor

6 years ago

Forcasting of result of commettion is not always certain, in a dynamic sociey of ours , change is more certain; all companies may offer diferrent products

Sanjeev Kumar

6 years ago

Every time any article comes on ULIP or Insurance Industry the Pvt Life Insurance cos are in the receiving end . No body talks about the misselling done by the LIC agents , no one talks about curbing the agent's luring the investors by offering CUT by paying three months on initial premium, no one talks about the OPAQUE money back and endowement policies offered by LIC.Its true that LIC is a giant and about 50 years old co -- but how can you compare a 10 years kid ( Pvt Life Insurance co) with a 50 years old person ? More over its the Pvt cos who have brough professionalism , Transparency and Innovation in this Industry. I am sure the new ULIPs will provide better offers to the investors than the traditinal plans But the biggest challenge before the Pvt cos is motivate their Agents ans Channel partners to seel the schemes with a very Low incentives.

durai

6 years ago

I do not think that private insurers will loose their market. All above i can say ULIP is the best one which has lots of sdavntages i,e, transparent, inflation proof, chance to exit, insurance coverges continues though premium unpaid after lock in period, but not the tradition plans. What still required from IRDA or Governamnt is that wide publicity that there will be a protection for their money irrespective of the company public or private they choose for their insurance needs.

Raghavaiah Kurapati

6 years ago

It seems the author is from LIC. LIC has woken up only after private people started plyaing a better role. If you go by records it is LIC that sold more ULIPs during last 4-5 years. Certainly it is private insureres that made insurance subject live in India. If you look at TATA AIG and some other companies in pvt sector they have good policies on par with LIC. One should guide the public in writting good things about pvt sector also. There are DOs in LIC for several decades, what prevented them to develop insurance and particularly pure term policies of life cover nature all these decades. Did they do justice to the benefits what they got. Infact, lot of wrong selling and wrong promises happend all the while and all these decades. Better late than never, let LIC makes it strict to sell on needbased way rather than on Closing the Policy basis.

R Srinivasan

6 years ago

The new guidelines are framed to enable investor get better returns which is not going to happen at all-When people talk aboujt charges on ULIPs do they have any idea of charges on traditional products which are much higher than ULIPs-Will IRDA look into these plans also?

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