We reiterate our Buy rating on Idea and maintain our Neutral rating on
Bharti/RCOM post our recent meetings with industry participants, as we
believe competitive dynamics are currently stable with incumbents well
positioned to maintain revenue market share and new entrants continuing
to struggle. We believe the recent re-rating is driven by improving risk
premium rather than consensus earnings revisions and think that the
potential upside is capped in the near term due to regulatory overhang.
Regulatory overhang: 900 MHz refarming risk persists
We expect TRAI’s recommendations on 900 MHz refarming to come out in
the near term. Although EGoM/DOT has the final authority on these recos,
based on our meetings with the regulator/industry participants, we now see a
higher possibility of these recos being potentially implemented. Further, we
see a low possibility of EGoM linking 2G spectrum prices (beyond 6.2 MHz) in
a 1:1 proportion with 3G prices. We, therefore, adjust excess 2G spectrum
price to a third of 3G spectrum value (as 3G is 3X more efficient than 2G) and
also include the impact from 900 MHz refarming into our estimates.
MNP may miss Oct 31 timeline; but likely before year-end
MNP rollout in India may miss the official timeline of Oct 31, in our view, on
the back of MTNL not having MNP-compliant equipment and lack of clarity on
Telcordia’s participation in the MNP rollout. However, we expect MNP rollout
before the year-end. We estimate 5%-8% of Bharti’s earnings are at risk.
3G benefits in medium-term; near-term outlook muted
We estimate operators to launch 3G by the year-end, but do not expect any
near-term benefits from 3G given the lower penetration of 3G handsets (6%
of subs in 2010E). We believe operators are in discussions for signing
agreements to provide 3G in the circles in which they do not have licenses.
Upside risk due to RPM trending up; but not in 2QFY11
While pricing power is still not back with incumbents, they believe
curtailing free minutes/freebies could lead to an improvement in RPM. We
raise our FY11E-FY13E EPS for Bharti by 3%-6% and our 12-m SOTP-based
TP to Rs350 (from Rs320) on the back of stable RPM. For Idea, we lower our
FY11E-FY13E EPS by 7%-19% due to higher interest expense; but a 2%
decline in capex raises our 12-m SOTP-based TP to Rs80 (from Rs79).
No comments:
Post a Comment