Jan '02-Forbes.com Indian Stocks For American Investors
By Megan E. Mulligan
India has three times the population of the United States, but an economic
output less than 5% than that of the U.S. Closing the economic gap with the U.S.
and other more developed countries won't be easy, but it helps that the Indian
economy is in the midst of a growth spurt.
Gross domestic product numbers for 2001 aren't in yet, but analysts anticipate
that in both 2001 and 2002, the Indian economy will grow at a faster pace than
the U.S. economy.
Another positive: The Indian government has improved measures to increase
foreign investment and sell some of its stakes in state-owned public companies.
Telecom giant Videsh Sanchar Nigam Limited , or VSNL, is one example.
Known as one of India's navaratnas, or "nine jewels," it is roughly equivalent to
an American blue chip. The Indian government maintains a controlling 53%
stake in the firm, but plans are in the works to divest a significant portion of this
stake.
Given India's notorious bureaucracy, the privatization of VSNL could take a
while--but it may be worth the wait for patient investors. VSNL has a monopoly on
international telecommunications services and was the country's first Internet
service provider (ISP), now boasting 650,000 subscribers.
According to most recent available data (1999), India has 27 telephone lines and
three personal computers per 1,000 people. In the U.S., the penetration is 664
phones and 511 PCs per 1,000 people. Yet the number of phone lines and PC
connections in India is practically doubling each year as the nation updates its
infrastructure.
Shares of VSNL have dropped 52% since hitting their 52-week high in February;
the company currently trades at just ten times estimated 2002 earnings. VSNL
has a market value of $1.3 billion and annual sales of $1.6 billion, giving it a
price-to-sales ratio of 0.8. In contrast, America's AT&T sells for 1.1 times sales.
VSNL, like many Indian stocks, has been in a mini-slump over the past few
months, caused, in part, by political tensions between India and Pakistan. The
dip may be an opportunity to invest in Indian stocks that seem undervalued or
seem to offer exceptional growth potential.
Shares of Satyam Computer Services' Satyam Infoway subsidiary are off 81%
since their 52-week high last January. Satyam Infoway is one of the country's
leading ISPs and operates several portals.
Last year, Satyam Infoway lost $54 million on revenue of $39 million, but
increasing Internet penetration is likely to cause further sales growth. Security
analysts think that Satyam Infoway's losses will continue in both fiscal 2001 and
2002, though they are expected to shrink in size.
Satyam Infoway is also negotiating to buy parent Satyam Computer Services. A
positive: Satyam Computer Services is expected to turn around in fiscal 2001,
which ends in March. The estimated 2002 P/E for Satyam Computer Services is
17.
ICICI Bank , a commercial bank with a market value of $507 million and 350
branches throughout India, is another Indian outfit that is attempting to buy its
parent firm, ICICI Limited , as part of a privatization deal. ICICI Bank trades at
seven times estimated 2001 profits for its fiscal year ending in March.
Indian ADRsNM: Not meaningful; Prices as of Dec. 28; Sources:
BloombergFinancial Markets; FT Interactive Data, Thomson Financial/IBES and
Market Guide via FactSet Research Systems |
