DATA ACCESS (INDIA): Dialing the Right Number

While the consumer has been enjoying the ben-efits of the telecom

liberalization in India, opportunities for the retail investor for exposure in

the growing markets are coming to the fore. With the Indian economy meshing

further into the global arena, international telecom traffic is worth $13.7

billion and is expected to grow at a CAGR of 10.8% to reach $24.3 billion by

2006. There are four players in the market today: VSNL, Data Access, Bharti and

Reliance. BSNL is also expected to start ILD services soon. Consequently, Data

Access is up against stronger competitors and its business model faces

considerable risk in the long term.

Data Access (India) has been promoted by Pacific Netinvest and SPA

Enterprises. Pacific Netinvest primarily concentrates on down-streaming

investments into telecommunications business and is closely held by Pacific

Convergence (Mauritius), SPA Enterprises, Siddhartha Ray and Purva Rakesh. It

has business interests in the fields of media, telecommunications, internet

content and IT enabled services.

The company was incorporated on October 31, 1997 by two individual

subscribers namely, Siddhartha Ray and K B Lal, as a private limited company and

became a deemed public limited company on July 1, 1999. On June 1, 2000, the

Company was granted a category ‘A’ Internet service provider license for a

period of fifteen years to provide internet services and to establish its own

internet gateway in India. Thereafter the company converted into a public

limited company on January 29, 2004.

The principal business of the company is to provide international long

distance telephony services and internet (including internet telephony)

services. The company’s network has been designed to cater to traffic demand

outside India and its business model supports that with global arbitrage

opportunities. The company has operating licenses in the US, UK and in Sri Lanka

through a joint venture in addition to having interconnect arrangements with

over 110 international carriers who hand over/ take over calls for over 210

countries at their switches in New York, London and Hong Kong and its points of

presence (POPs) at Los Angeles, Singapore and Cyprus.

The company has business divisions like wholesale voice division that carries

voice traffic to and from India and in other overseas markets where Data Access

has its own operations and the wholesale data division which provides IP based

solutions to enterprises and gateway services to other carriers. The company

operates several telecommunications licenses in India, the United Kingdom,

United States and European Union countries for voice data and broadcasting

services. It has network operating centers in Delhi, Mumbai, Chennai, Bangalore

and Kolkata.

For the financial year ended September 2003, the company registered revenues

of Rs 601.4 crore as compared to Rs 92.1 crore in the previous year. Revenues

for the wholesale voice business division amounted to Rs 577.3 crore,

contributing 96% of the total revenues earned during the year and the balance 4%

of revenues were from the wholesale data division amounting to Rs 24.1 crore.

Revenues earned from USA were Rs 421.0 crore contributing 70% followed by UK and

the Middle East contributing the balance 30% which amounted to Rs 180.4 crore.

Net income for the same period amounted to Rs 22.2 crore. The company has staff

strength of 173 employees involved in the performance of network operations,

technology and carrier sales, retail business and other general and

administration functions. Data Access expects the number of employees to grow

proportionately with the expansion in its business.

Data Access plans to enter the capital market with a public issue of

50,000,000 equity shares of Rs 10 each where the price band has been fixed at Rs

17 to Rs 20. The issue will constitute 25% of the company’s paid-up capital.

The equity shares are proposed to be listed on the Bombay Stock Exchange (BSE)

and the National Stock Exchange of India (NSE). The company intends to use the

net proceeds of the fresh issue for acquisition of transmission equipment,

capital expenditure for foray into emerging markets, long-term working capital

requirements and repayment of borrowings.

Data Access IPO has been postponed due to some information sought by SEBI

relating to payments to be made to BSNL and investments made by Centure

Cyberworks that is part of Richard Lee Group of companies. The company has

responded to these queries and expects clearance from SEBI shortly.

The IPO pricing is assumed at an offer price of Rs 18.5 (average of Rs 17 and

Rs 20) of face value Rs 10 corresponding to 12.14 times its FY2003 earnings and

5.62 and 4.36 its FY2004 and FY2005 earnings respectively.

Given the high level of competition in the sector, partial profit booking

post listing is also recommended. Subscribe.

Sushanto Mitra