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India Wireless
Rev/min Can Rise? – Not Mere Wishful Thinking
TRAI data on active subs - not so surprising — TRAI disclosed 30% of the overall
wireless subscriber base to be “inactive.” Incumbents have the highest proportion
of active subs with Bharti at 89% followed by Idea (88%) though Vodafone is only
at 75%. Idea’s high active sub proportion is commendable given its new entrant
status in 11 circles (incl Spice) and highlights aggressive strategy in these circles.
This is also seen its rev/min trend with declines sharper compared to the
incumbents. Meanwhile RCOM stood at ~65%, DoCoMo (46%) and Uninor (30%).
Inactive versus total - a function of multi-SIMs - should reduce — The new
entrants’ (incl dual-tech) high proportion of inactive subs highlights the heavy
promotional offers in the system in their effort to fill up their networks (by
encouraging multi-SIMs). The ongoing 2G controversy, negative for new entrants,
however should provide a competitive breather to the incumbents while also
helping reduce multi-SIMs in the system.
Rev/min set to rise? — Incumbents rev/min is likely to come under pressure from
MNP (2-3p decline) in the next 3-6 months. However with the easing of
competitive intensity in pre-paid and once damage from post-paid cuts gets
absorbed (Q1’12), the rev/min for the incumbents could move up especially if
promotional offers reduce. Idea will benefit the most in this scenario given highest
leverage - 1p increase in rev/min (from base case) will increase FY12-13E EBITDA
3-7% versus 2-4% for Bharti. Our rev/min estimates (3p decline in FY12E, 1p in
FY13E) for Bharti/Idea therefore leaves room for upside
Bharti is our top pick — Bharti benefits both from the revival in domestic growth
as well as from the Africa upside. Idea too benefits from the improving business
environment though it is trading at a 25% premium to Bharti (FY12E EV/EBITDA),
which we believe is not justified despite cleaner play and higher growth v/s Bharti.
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