India Telecoms – TeleScan – Vol 20/10 : Anand Rathi

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India Telecoms – TeleScan – Vol 20/10 

n       Qualcomm in talks to sell Indian BWA venture, as per media (e.g. Financial Express, 28 Oct ’10). Qualcomm’s 74% India subsidiary had acquired 20MHz of broadband wireless access (BWA) spectrum in four circles (Delhi, Mumbai, Kerala, Haryana) for `49.1bn (US$1.1bn) at the Apr-May ’10 auctions. Qualcomm had acquired the spectrum for promoting TD-LTE technology; it is now willing to sell the BWA entity on a condition that the buyer undertakes using the TD-LTE technology. Various telcos, including Bharti and Aircel, are reportedly interested in acquiring the company. We believe that likelihood of the deal happening, and valuation of the BWA entity, would both be constrained as the commercial deployment of TD-LTE technology is still 2-3 years away. In Jul ’10, Qualcomm had sold 26% equity stake in the BWA entity – 13% each to Tulip Telecom (Hold; TP:`215) and GTL’s promoter company. Our current TP for Tulip values investments in the BWA venture at cost (`1.4bn; `10/share).

n       Uninor – 3QCY11 results. Uninor reported 108% qoq revenue growth, driven by 96% growth in average subscriber base and 8% increase in ARPU (MOU up 22%, ARPM down 11%). However, Uninor continued incurring huge EBITDA losses, of `8.5bn (US$190m) in 3QCY11 (flat qoq). We believe it is cutting its capex (new CY10 guidance: US$250-340m vs. US$340-425m earlier) to limit the cash burn. Given the high level of operating losses (fixed costs from tower leasing), we believe Uninor may not emerge as an attractive acquisition target vis-à-vis other new licensees, should it consider exit/consolidation options.

n       Vodafone Essar looking to sell its 7,000 towers in ‘non-Indus’ circles, as per media (The Economic Times, 4 Nov ’10) – The company has transferred towers in the remaining circles to Indus Towers, its JV with Bharti and Idea. We believe towers sale may fetch EV of US$800-900m, based on EV/tower in the recent M&A deals (`5-5.5m/tower).

n       Investment views. Despite weak traffic growth of Idea in 2Q (driven by seasonality), we believe wireless industry growth would continue to recover, driven by robust traffic growth and slower ARPM decline vs. past quarters’. Maintain Buy on Bharti and Idea. Tulip may rally in the near term due to excessive discount in valuation multiple vs. large caps, post recent under-performance. We retain Sell on RCom (weak KPIs, highly leveraged balance sheet) and Tata Tele (Mah) (challenging revenue outlook, stretched balance sheet and steep valuations).