The Hindu Business Line : Aishwarya Telecom

Investors can avoid the initial public offering of Aishwarya Telecom, a player in the telecom test and measurement segment. Scalability risks, limited capacity to invest in newer technologies and competition from international players weigh against the company; these may limit its ability to take advantage of the growing telecom market.

At the upper end of the price band — Rs 35 — the stock would trade at eight times its full year earnings. This is the valuation at which its listed peer, Aplab, with much larger revenues, trades.

Test and measurement equipment are required to test various technical parameters with respect to the performance of the network, usage of spectrum and quality of service. This starts right from planning network layout through installation of network equipment to finally testing and maintaining the network.

These become relevant for generating reports for compliance on technical parameters. Even handsets used by subscribers need such testing. The users of these equipment and associated services broadly include telecom service providers and equipment manufacturers.

The business potential for test and equipment manufacture and services is high. The rapid mobile-services network expansion, helped by a burgeoning subscriber base, the impending announcement of 3G policy, ISP rollouts and healthy subscriber growth in DTH services, apart from the rollout of IPTV, WiMax, all create opportunities for test and measurement(T&M) vendors. But three factors would be critical for a company to tap this opportunity.

Top telecom service providers have their operations spread across the country.

The sheer pace of subscriber growth at 7-8 million per month has meant that operators are spending billions of dollars on network building and upgrades.

This level of operations requires T&M equipment providers to have high scalability to deliver across large regions and states.

Aishwarya, despite 12 years in existence in this space, remains relatively small-sized, with annualised revenues of about Rs 30 crore in the current year. This may largely be because Aishwarya has been a reseller of products of overseas players, with limited value-addition at its end.

The company has won deals from several operators over the years, but these have tended to be of very small size compared to the overall pie.

From having BSNL as its main client, the company has managed to diversify its offerings to cater to non-PSU operators, Defence and the Railways as well. But all these are at a nascent stage. Scale is required both in service delivery on imported equipment as well as in manufacturing of indigenous equipment.

Second, smaller players may also find it challenging to develop expertise and invest in technology — key requirements in this space. Possessing end-to-end capabilities and keeping pace with evolving technologies may be crucial for a player to move up the value chain.

In this respect, Aishwarya’s capability might be limited. The company has tied up with IIT Madras for developing new modules, which are at the cutting edge of research and in conformance to TEC standards. How this initiative pans out remains to be seen.

Third, competition from the market leader, Agilent Technologies, and fully integrated players may pose challenges. Agilent and players such as Rohde & Schwarz already have strong working relationship with BSNL as well as many private operators.

They may logically be better placed to tap incremental spend on T&M equipment by these players. A possible direct entry by the company’s principals into the country could be another threat.

Offer details: The company plans to issue 4,000,000 shares in the price band of Rs 32-35. Bigshare Services are the lead managers to the issue. The offer is open from April 15-17.

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