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PROJECT REPORT

ON
IPO – 2004 Analysis
HFCL INFOTEL

SUBMITTED TO:
Prof.Gurendra Nath bhardwaj

SUBMITTED BY:
Anu Gupta

Rachana Anupama
Mishra

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ACKNOWLEDGEMENT

It is our privilege to take the opportunity to thanks all


those who have directly or indirectly helped us in the
completion of this present Project work.

We are indebted to our faculty Dr. Gurendra Nath


Bhardwaj for being supportive throughout and making
this project of ours presentable. Without his guidance
and support we would not have been able to come up
with this report. We would also like to express our
appreciation for the encouragement and direct
assistance, excellent cooperation, valuable suggestion
and help given by him at every step of our project.

We express our deep sense of gratitude to all the


people who have devoted their time during our project.
Also we would like to thank them all for sharing their
views openly with us throughout the present endeavor.

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Introduction
The company holds 62% in the bse listed hfcl infotel. Hfcl infotel is a subsidiary of the
company and is giving landline services and broadband services in the state of Punjab. The
company has launched recently cdma mobile services by the name of PING. The company
has already paid the license fee of 151 cr for gsm service in the state of Punjab.

The valuation of hfcl infotel at cmp of rs 35 comes to around 1900 crore.The company at
current valuations is at a discount to regional operators like spice tele and ttml. Although the
latter cant be strictly compared with hfcl infotel as it has prestigious name like

TATA attached with it Hfcl holds 32.57 crore shares in hfcl infotel which is valued at 1150
crore. The interest shown by fiis in hfcl infotel shows that the best in price is yet to come.

Hfcl current share capital is 442 cr divided into 44.20 crore shares of Rs 10 each. Value per
share in hfcl is rs 26.No holding co discount will be given as hfcl infotel will be either sold
off if hfcl doesn’t get a pan India license or merged with hfcl if it gets one. Upside to
valuations possible if the stock continues to hit upper circuits. Hfcl has applied for the pan
India telecom license and we strongly believe that the company stands a god chance to win
the same based on two reasons.

It is the 5th company in the waiting list of the telecom applicants thus being ahead in the first
come first serve list. Moreover the company also stands a better chance as the government
has conveyed that companies present, as an operator in one circle will get a priority to
expand. Once the disputes over the spectrum issue are cleared a rerating of the stock is
possible. We strongly believe that hfcl stands a good chance to win the ALL INDIA
TELECOM LICENSE. Hfcl also has received around 310 cr from a land deal in chennai.
This works to around Rs.7 per share. Hfcl also has a telecom infrastructure business, which
is the only basis of its present valuation. In an interaction with the management after the
dismal performance in last quarter we were said that the delay in bsnl multi billion orders to
nokia and ericcson the sub contracts to hfcl got delayed and hence the stock price fell to 17
levels. The management has also hinted strongly that the September quarter results will also
be below expectations. Now with entry of new companies including hfcl itself we believe

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that order book crunch will be a thing of the past. The companies’ telecom infrastructure has
been always valued poorly by the market.

Share Price Trend Analysis


For the year 2005:

ANALYSIS:
The above graph shows that in the month of IPO in 2005, the market price was
high but gradually it fell from Rs. 431.86 to Rs. 349.72, a decline of 19%. But in
the last month of the year it showed a marginal growth. However, the share
price was much higher than the issue price thus depicting the investors’
(Rs.)
confidence at higher side. Still the annual growth rate was -11.39%.

ANALYSIS:
The standard deviation of the market price from the issue price was high in the month of
September being Rs121.53; but gradually decreased in the following months to Rs63.44 in
Nov 2005. There was an increase in the deviation in the month of December of 2005. These
deviations being on the positive side w.r.t compared to the issue price indicates higher
valuation of the stock.

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ANALYSIS:
Coefficient of variation is the measure of risk of the stock. From the above graph
it can be observed that the risk was high on the issuing month of shares in Sep
2005 being 46.74%; but showed a decreasing trend in the following months and
again increasing in Dec 2005 with a value of 33.35%. This result was in line with
the basic principle of risk and returns where the risk increased with the increase
in return, i.e. increase in share price.

FOR THE YEAR 2006:

ANALYSIS:
The above graph shows that monthly average price of the share had a decline
trend from Jan 2006 to July 2006 from Rs 352.92 to Rs 295.62 with a decline rate
of 16.23%.Then a growing trend was observed from Aug 2006 to Dec 2006 from
Rs309.80 to Rs. 498.42 with growth rate of 60.89%. As the growth rate is much
higher than the decline rate, it shows the improvement in the performance of
the stock from mid 2006 and thus increases in investors’ confidence. The annual
growth rate was 41.23% indicating moderate behaviour of the stock.

ANALYSIS:

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The above graph shows a low deviation of the market price from the issue price
in the starting months of the year 2006. But after diving to Rs. 14.97, the
deviation went very high to Rs. 168.59. It indicates the increase in the aggressiveness
of the investors towards the stock.

ANALYSIS:
In the above graph it can be observed that the risk of the stock decreased till
the mid of the year but suddenly started increasing in the later months and went
upto 64.84 % in the last month of the year.

FOR THE YEAR 2007:

ANALYSIS:
In the year 2007, the graph shows a decreasing trend in monthly average price
which decreased from Rs. 565.10 in January to 309.43 in December, 2007 and
thus resulting an annual growth rate of -45.24%. This was due to the decline
phase started from Aug-Sep 2007, the period when the global crisis had started
in US. The sharp decline was observed in Aug 2007 with the decline rate being

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27.87%. However, the overall decline rate for the year was not abnormally high
and so again reinforcing the fact that the stock followed the global market
scenarios moderately.

ANALYSIS:
The above graph also shows a decreasing trend in monthly standard deviation of
the market price from the issue price. The deviation was as high as Rs. 215.74 in
January, 2007 which decreased to as low as Rs. 10.51 in November 2007. The
drastic fall was observed in Aug 2007 with the fall rate being 62.92%. This
indicated the volatility in the stock was on higher side even though the price
decline rate was only 27.87%

ANALYSIS:
The above graph shows that the market risk of the stock has decreased in the
last months of the year. The risk was at higher percentage of 82.98% which
decreased to the lowest percentage of 4.04% in the month of November.

FOR THE YEAR 2008:

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ANALYSIS:
The above graph of monthly average price shows mixed variations during the
year. The price was very high in the months of January and April and had a
significant decrease in the month of November and December. The highest
average price was Rs. 292.81 and the lowest was Rs. 57.66. The annual growth
rate was -77.62%. This decline rate was higher due to the economic slowdown
impact felt in Indian economy. But again the decline rate was not abnormally
high; but the sensitivity towards Indian market was much higher than that for
global market.

FOR THE YEAR 2009:

ANALYSIS:
The above graph shows that in the year 2009, the monthly average price had a
constant increase from Rs. 51.60 to Rs. 147.91 with growth rate of 186.65%.
This was an impressive performance observed for the stock in 2009. Thus, the
year 2009 witnessed an aggressive behaviour of the stock after the start of
revival of the Indian economy from Apr 2009 onwards. However, the fall in share

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price in the previous years was so drastic that after a growth of 186.65%, the
share price was below the issue price.

ANALYSIS:
From the above graph, it can be found out that the deviation of the market price
from the issue price had a constant decrease. There was a good decreasing
trend in the deviation which fell from Rs. 147.36 to nearly half, i.e., Rs. 79.26.

ANALYSIS:
The market risk of the stock had a declining trend as shown in the above graph.
The risk decreased from 56.68% to 30.48%. The share price being moving
towards the issue price the reduction in risk was achieved. It means the
downside risk had been reduced over the year.

ANALYSIS OF YEARLY AVERAGE:

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ANALYSIS:
The above graph shows the different yearly average price of the stock after the
issue of the shares. In the year of the issue and in the following two years the
market price was nearly stagnant and varied from Rs. 383.89 to Rs. 430.90 but
in the 2008 and 2009 there was a sudden fall in the market price. The price went
as low as to Rs. 83.45 in the year 2009.

ANALYSIS:
The above graph shows that during the span of 5 years the deviations of the
market price from the issue price had an increasing trend with a marginal dip in
the year 2006. The market price deviation was the lowest at Rs. 73.84 and the
highest was at Rs. 124.84.

ANALYSIS:
The market risk of the stock during the span of 5 years had many variations.
From the above graph it can be viewed that the risk was the lowest in the year
2006, i.e., 28.40% but was also as high as 48.01% in the year 2009.

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Conclusion
The company will soon achieve the “break even’’ point, at 1.50 lakh
connections, a marginal increase from present 1.30 lakh connections. He
said if allowed by the government, Connect will offer national roaming
service to its WLL customers, currently offered by the Reliance.

Mr Nahata announced that out of Rs 200 crore planned investment, HFCL


Infotel will invest Rs 170 crore from internal accruals and Rs 30 crore will
be invested by the company promoters. He claimed that despite stiff
competition from other telecom operators, the annual revenue of Connect
has increased to Rs 225 crore during 2002-03 from Rs 150 crore during
the previous year. The company was expecting an annual turnover of Rs
300 crore during the current fiscal.
The management of the HFCL group is seriously looking at the option of
splitting the company, one concentrating on hardware sector and other
on services. The final decision in this regard, he said, will be taken by the
Board of Directors and cleared by shareholders. The company is hopeful
that by March 31, 2005, the number of connections will increase from
1.25 lakh to 3.5 lakh in Punjab. The company will expand its operations
from 26 cities to 250 towns, he added.
From the above analysis of stock price of HFCL Infotel Ltd. we can conclude that
• The stock sensitivity towards global market was less and the same
for Indian market was much higher. Thus it behaved moderately
with the global market and aggressively with Indian market.
• The Compounded annual growth rate was -78.26%.
• No cyclical effect was observed from 2005 to 2009

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