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Telecoms
We expect a spectrum road-map to emerge from the recent 2G
controversy; this will be positive
3G launch will be a key driver for future growth
Re-rating unlikely before (still distant) sector consolidation/shakeout
Bharti is best positioned in the sector
2011 sector outlook
We expect the outlook for the Indian telecom
sector to improve in 2011, driven by progress on
the regulatory front, stabilization of tariffs and
launch of 3G services. We believe investors are
like to focus on usage growth, MNP and initial
trends/take-up of 3G services.
We believe the recent regulatory developments
put a lot of pressure on the government to revisit
the present M&A policies and spectrum roadmap.
Moreover, limited spectrum somewhat limits
choices for the regulator and favours sector
consolidation. However, we do believe that the
entire process will at least take a couple of
quarters to settle down.
In 2010, the Indian telecom sector saw some
respite as tariffs stabilized for most of the year.
After the recent 2G controversy, in 2011 we
believe that a few of the new entrants may have to
make some sort of a payment, either for spectrum
or fines for not meeting roll-out obligations.
Incremental investment by the new entrants is
very likely to slow, preventing further expansion
of voice capacity; we see this as positive for the
sector because it should allow voice tariffs to
remain stable. However, MNP poses a threat to
tariff stability and we view that as a possible
source of near-term disruption. Besides, we
cannot rule out the possibility that a few new
operators may surrender their spectrum and this
may allow additional spectrum to be released.
We believe the sector should benefit from the
launch of 3G services in 2011. We expect uptake
to be more rapid in the Metros and A category
circles, but only towards the end of 2011 are 3G
services likely to have some visible financial
impact for the operators. Nevertheless, the ramp
up in the 3G ecosystem and smaller probability of
a 3G tariff war will be positive for the sector.
In summary, we expect regulatory issues to be the
key focus during the first half of 2011, and rollout
of 3G services during the second half of the year.
Best positioned in 2011
Bharti Airtel, N(V), TP INR370
We don’t currently have an Overweight-rated
stock in the telecoms sector. In our view, Bharti is
the best positioned company in the sector, but the
stock is fairly valued at current levels. We believe
the company is suitably placed to benefit from 3G
rollout and some near-term gains in Africa.
Bharti is well positioned in the Indian market with
the largest block of 900 MHz spectrum in the
market (13 circles) and 3G spectrum (also 13
circles) that covers 68% of India’s population, the
largest of all operators. We expect the company to
see the fastest 3G adoption in the sector at 17% by
2015. Given its good quality spectrum bank, we
believe the company is suitably placed to fight the
MNP (mobile number portability) battle.
Moreover, the outlook for Africa is likely to
improve with progress on tower sharing there.
Our target price of INR370 implies 15.8x FY12e
EPS. The key upside risks, in our view, are sector
consolidation and ability to monetize tower assets.
Downside risks include the acceptance of TRAI
recommendations in the current format.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Telecoms
We expect a spectrum road-map to emerge from the recent 2G
controversy; this will be positive
3G launch will be a key driver for future growth
Re-rating unlikely before (still distant) sector consolidation/shakeout
Bharti is best positioned in the sector
2011 sector outlook
We expect the outlook for the Indian telecom
sector to improve in 2011, driven by progress on
the regulatory front, stabilization of tariffs and
launch of 3G services. We believe investors are
like to focus on usage growth, MNP and initial
trends/take-up of 3G services.
We believe the recent regulatory developments
put a lot of pressure on the government to revisit
the present M&A policies and spectrum roadmap.
Moreover, limited spectrum somewhat limits
choices for the regulator and favours sector
consolidation. However, we do believe that the
entire process will at least take a couple of
quarters to settle down.
In 2010, the Indian telecom sector saw some
respite as tariffs stabilized for most of the year.
After the recent 2G controversy, in 2011 we
believe that a few of the new entrants may have to
make some sort of a payment, either for spectrum
or fines for not meeting roll-out obligations.
Incremental investment by the new entrants is
very likely to slow, preventing further expansion
of voice capacity; we see this as positive for the
sector because it should allow voice tariffs to
remain stable. However, MNP poses a threat to
tariff stability and we view that as a possible
source of near-term disruption. Besides, we
cannot rule out the possibility that a few new
operators may surrender their spectrum and this
may allow additional spectrum to be released.
We believe the sector should benefit from the
launch of 3G services in 2011. We expect uptake
to be more rapid in the Metros and A category
circles, but only towards the end of 2011 are 3G
services likely to have some visible financial
impact for the operators. Nevertheless, the ramp
up in the 3G ecosystem and smaller probability of
a 3G tariff war will be positive for the sector.
In summary, we expect regulatory issues to be the
key focus during the first half of 2011, and rollout
of 3G services during the second half of the year.
Best positioned in 2011
Bharti Airtel, N(V), TP INR370
We don’t currently have an Overweight-rated
stock in the telecoms sector. In our view, Bharti is
the best positioned company in the sector, but the
stock is fairly valued at current levels. We believe
the company is suitably placed to benefit from 3G
rollout and some near-term gains in Africa.
the largest block of 900 MHz spectrum in the
market (13 circles) and 3G spectrum (also 13
circles) that covers 68% of India’s population, the
largest of all operators. We expect the company to
see the fastest 3G adoption in the sector at 17% by
2015. Given its good quality spectrum bank, we
believe the company is suitably placed to fight the
MNP (mobile number portability) battle.
Moreover, the outlook for Africa is likely to
improve with progress on tower sharing there.
Our target price of INR370 implies 15.8x FY12e
EPS. The key upside risks, in our view, are sector
consolidation and ability to monetize tower assets.
Downside risks include the acceptance of TRAI
recommendations in the current format.
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