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UBS Investment Research
India Mobile Sector
What the market is missing…
๔ TRAI recommendations leads to correction in Bharti and Idea
Bharti and Idea stock prices were down intraday by 6% & 13% respectively on the
back of TRAI recommendations on 2G pricing. The stocks ended the day down by
3% & 2% resp. We believe the stock market is missing few critical elements.
๔ Key considerations related to one-time and renewal spectrum charges
1) TRAI estimates for 2G pricing are just recommendations and DoT will have the
final say on 2G pricing. While we do believe that 2G spectrum will likely be priced
going ahead, we think that TRAI estimated prices may be diluted after discussions
with operators. 2) We see the likelihood of significant savings from a reduction in
license fees to a uniform 6%. Based on our estimates, the cost after incorporating
savings will likely be cRs8.5 for Bharti and Rs12 for Idea, all else equal. 3)
Operators can also increase tariffs going ahead if they have to pay for 2G spectrum
as we believe sector consolidation is likely. Also, we believe that if 2G spectrum
prices can be inflation-linked so can the tariffs. 4) Further, we see a chance that if
2G licenses given to new operators are cancelled then auction may be carried out in
future to determine 2G spectrum prices which may be more rational.
๔ Maintain positive view on sector; Reiterate Buy on Bharti, Idea and RCom
Bharti and Idea have already corrected by 14% and 20% respectively in May 2010
on account of TRAI recommendations. We believe that the recent share price
weakness offers an additional opportunity to buy Idea, Bharti and RCom. We
believe that the improvement in regulatory climate coupled with better pricing
should enable the sector to outperform in 2011. Idea is our top-pick as it offers
pure play exposure to the Indian mobile sector.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
India Mobile Sector
What the market is missing…
๔ TRAI recommendations leads to correction in Bharti and Idea
Bharti and Idea stock prices were down intraday by 6% & 13% respectively on the
back of TRAI recommendations on 2G pricing. The stocks ended the day down by
3% & 2% resp. We believe the stock market is missing few critical elements.
๔ Key considerations related to one-time and renewal spectrum charges
1) TRAI estimates for 2G pricing are just recommendations and DoT will have the
final say on 2G pricing. While we do believe that 2G spectrum will likely be priced
going ahead, we think that TRAI estimated prices may be diluted after discussions
with operators. 2) We see the likelihood of significant savings from a reduction in
license fees to a uniform 6%. Based on our estimates, the cost after incorporating
savings will likely be cRs8.5 for Bharti and Rs12 for Idea, all else equal. 3)
Operators can also increase tariffs going ahead if they have to pay for 2G spectrum
as we believe sector consolidation is likely. Also, we believe that if 2G spectrum
prices can be inflation-linked so can the tariffs. 4) Further, we see a chance that if
2G licenses given to new operators are cancelled then auction may be carried out in
future to determine 2G spectrum prices which may be more rational.
๔ Maintain positive view on sector; Reiterate Buy on Bharti, Idea and RCom
Bharti and Idea have already corrected by 14% and 20% respectively in May 2010
on account of TRAI recommendations. We believe that the recent share price
weakness offers an additional opportunity to buy Idea, Bharti and RCom. We
believe that the improvement in regulatory climate coupled with better pricing
should enable the sector to outperform in 2011. Idea is our top-pick as it offers
pure play exposure to the Indian mobile sector.
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