Tuesday, February 13, 2007

Post 244 : Vodafone picks up Hutch

I think 19bn dollars is quite a steep price for Hutch. My investing skill tells me, that 19bn investment to generate about 1bn year, or even 3bn by 2009, is such a steep Return on investment demand.

I fundamentally like fee based businesses like broking (ICICIDirect), cable (HTMT or SKYB in UK), telecom (Hutch, Airtel, MTNL)...why? because they generate a constant income, does not really pinch someone, but like FCMG, a million people paying 250rs. per month, becomes a quarter billion rupees.

Inspite of this theory, I think fee based business should be built up scratch up, never bought out, esp. in telecoms, where with number mobility coming in soon - the customer is really going to be king - Hutch shall see a churn, and a further shrinkage of margin.

Bharti will be unaffected, since they have probably invested 3bn into it in all- and are making a 1bn per year out of it.....cool I would say. So would RCOM.

Of course, Vodafone is known to idiotic, who can forget the 150bn+ deal amount they paid to acquire Mannesmann AG in 2000 (Did not sound very irrational in 2000, did it)?

If Vodafone ever got listed in India, I would hammer the stock, they would never make decent ROCE on this deal.

They would have got 5-10% return from a bank, which for 19bn means about 2bn per year.....they could have invested it as Private Equity and made money.....

ROCE on this deal sucks big time. But then again, time will tell.....I am so tiny as compared to Vodafone, UBS (who helped in the deal) and Arun Sarin.

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