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VSNL will hit Rs 500-600 in five months, say analysts

NetScribes/Rajiv Banerjee

The Centre's decision to divest in VSNL will send the telecom major's scrip soaring to the Rs 500-600 levels in the next four-five months, say analysts.

Twenty-five per cent of the 52.97 per cent government stake in Videsh Sanchar Nigam Ltd would be given to a strategic partner and 1.97 per cent to employees, the Cabinet Committee on Divestment decided on Thursday.

The entry of a strategic partner, its incumbent advantage and the low valuations Videsh Sanchar Nigam currently enjoys, will be the drivers for the rise in the scrip price, is what analysts feel.

"Decisions will now be taken faster as the new partner will have management control. The divestment news can double the VSNL scrip in the next four-six months," predicts analyst with KR Choksey Shares & Securities, Chirag Shah.

Unshackled of the government's `golden share' and empowered with management control, the strategic partner would be free to venture into lucrative areas, says Shah. These factors paint a very rosy future for the company, he said.

"The scrip will hit Rs 450 in three months," says telecom analyst with Khandwala Securities, Nikhil Phutane. The strategic partner would infuse VSNL with management expertise and technology to combat competitors in the liberalised arena, he feels.

KR Choksey's Shah pegs his bullish view about the PSU on another factor - the incumbent advantage the telecom public sector unit enjoys, which has manifested in huge infrastructure over the years. This will ensure VSNL a leading role even in liberalised times, feels Shah.

The scrip can reach the Rs 500-600 heights in six-nine months, says analyst with Emkay Shares and Stock Brokers, Nayan Mehta.

Divestment will help unlock the true value of the company, he says. "VSNL's current P/E is lower than its actual potential. The divestment will help the company improve upon its valuations," he elaborates.

The PSU's scrip has already taken flight on divestment news. Within 45 minutes of opening on the Bombay Stock Exchange on Friday it hit the 16 per cent upper circuit limit.

VSNL finally closed at Rs 382.15, a good Rs 52.70 more from the previous close of Rs 329.45. A total of 112,000 shares were traded during the day.

At its current price, the scrip is trading at a P/E multiple of 7.5 times with an estimated EPS of Rs 50.75. VSNL has an equity capital of Rs 2.85 billion

Coming as it does in the wake of the Gujarat quake, the VSNL divestment decision assumes greater significance, say analysts.

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