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Telecom
During 4QFY2011, almost all telecom stocks slumped, with
Bharti Airtel (Airtel), Reliance Communication (RCOM) and Idea
falling by 0.4%, 26.8% and 4.3%, respectively, due to regulatory
uncertainties. These stocks underperformed the Sensex due to
the report released by TRAI, which was submitted by the spectrum
committee that was constituted to study the issue of valuing the
2G spectrum in the 1,800MHz band. The committee
recommended the price of the 1,800MHz pan-India contracted
spectrum at `1,770cr/MHz (47% lower than the 3G spectrum
price) and price of excess spectrum at `4,570cr/MHz (36%
higher than the 3G spectrum price). Based on the committee's
recommendation, Airtel will incur a one-time cost of `4,000cr
for excess spectrum (over 6.2MHz) and Idea will incur `1,750cr.
Following this, TRAI, in its letter to the DoT, suggested that the
government could consider auctioning the spectrum, which will
be released on cancellation of a few licenses, and that price
should be considered for future allotment. TRAI has also issued
recommendation regarding the reframing and repricing of the
spectrum. The recommended increase in spectrum charges,
if executed, will negatively impact the incumbents. The policy
uncertainty during the quarter led to the underperformance of
telecom stocks, despite improving outlook for incumbents.
MNP - A non-event for the sector: The initial data released by
TRAI shows that 3.8mn or 0.5% of the total subscriber base has
opted for MNP, which is not a significant number. Reports indicate
that Airtel, Idea and Vodafone were the key beneficiaries of
MNP and RCOM was among players who lost subscribers.
3G launch by private players to aid growth: Most telecom
players have launched 3G services in select areas, which will
aid revenue growth and overall profitability in the next few
quarters by stabilising average revenue per user (ARPU) and
average revenue per minute (ARPM). The offered pricing of 3G
services rules out the possibility of any irrational pricing and
will give a respite to the price war in the industry.
Incumbents witness strong subscriber additions
Over December 2010-February 2011, the Indian subscriber
base grew at an average rate of 2.6% mom. Amongst the
incumbents, Airtel, RCOM, Vodafone and BSNL grew at an
average rate of 2.1-2.7% mom, whereas Idea and Aircel
outperformed by growing at average rates of 3.1% and 3.3%
mom, respectively. New entrants, including Uninor, Loop Mobile,
Etisalat and S Tel, grew at average rates of 8.3%, 0.6%, 73.1%
and 8.1%, respectively, while Videocon declined at an average
rate of 10.9% mom.
Thus, a trend was spotted with most of the incumbents
(Vodafone, Idea, RCOM and Aircel) maintaining or inching up
their subscriber market share over December 2010-February
2011. Airtel and BSNL, however, lost their market shares slightly
to 20.2% and 10.8% in February 2011 from 20.4% and 10.9%
in December 2010, respectively.
Subscriber market share of new entrants such as Loop Mobile
and S Tel remained constant at 0.4% and 0.3%, respectively,
whereas Videocon lost its market share to 0.8% in February
2011. However, Uninor's market share increased to 2.7% in
February 2011
ARPM to remain flat
ARPM has been registering free fall at a ~5% CQGR over the
past nine quarters on the back of entry of new players and the
price war. However, the price war logged by these new entrants
has turned into a curse for their own sustainability.
The confidence in no further possibility of a price war was
instilled by the rational pricing move by various telecom players,
i.e. no case of undercutting. Therefore, we expect ARPM to
remain flat qoq for Airtel and Idea, while we expect a 1.6%
qoq decline for RCOM in 4QFY2011.
ARPUs to decline
For 4QFY2011, we expect the combination of flat ARPM and
weak MOU to pull down ARPU by 2.1%, 2.5% and 5.2% qoq
for Airtel, Idea and RCOM, respectively.
EPMs to remain stableFor 4QFY2011, we expect EBITDA per minute (EPM) to remain
flat for Idea. However, for Airtel, we expect EPM to witness a
slight decline due to stable ARPM, marginal dip in MOU and
strong subscriber growth. Further, for RCOM, we expect EPM
to inch up slightly on the back of strong subscriber growth.
Outlook and valuation
For 4QFY2011, we expect revenue growth to be driven by strong
growth in subscriber base, flat ARPM and growing VAS share
in mobility revenue. We expect Idea, Airtel (including Zain) and
RCOM to register qoq revenue growth of 4.6%, 4.7% and 6.5%
qoq, respectively. On the EBITDA margin front, we expect Airtel
to record an expansion of 78bp qoq to 32.4% due to lower
personnel cost and decreasing network operating expense
(NOE) with higher subscribers per cell site. Idea and RCOM
are also expected to post EBITDA margin expansion of 140bp
and 157bp qoq to 25.4% and 33.0%, respectively.
The sector continues to be haunted by issues related to the 2G
scam. We believe industry dynamics point toward a possible
consolidation in the long run and expect only few operators,
including Airtel, Vodafone, RCOM, BSNL, Aircel, Idea and TTSL,
to survive out of the current 15 operators. Airtel continues to be
our preferred pick amongst telcos due to its low-cost integrated
model (owned tower infrastructure), potential opportunity to
scale up in Africa, established leadership in revenue and
subscriber market share, and relatively better KPIs.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Telecom
During 4QFY2011, almost all telecom stocks slumped, with
Bharti Airtel (Airtel), Reliance Communication (RCOM) and Idea
falling by 0.4%, 26.8% and 4.3%, respectively, due to regulatory
uncertainties. These stocks underperformed the Sensex due to
the report released by TRAI, which was submitted by the spectrum
committee that was constituted to study the issue of valuing the
2G spectrum in the 1,800MHz band. The committee
recommended the price of the 1,800MHz pan-India contracted
spectrum at `1,770cr/MHz (47% lower than the 3G spectrum
price) and price of excess spectrum at `4,570cr/MHz (36%
higher than the 3G spectrum price). Based on the committee's
recommendation, Airtel will incur a one-time cost of `4,000cr
for excess spectrum (over 6.2MHz) and Idea will incur `1,750cr.
Following this, TRAI, in its letter to the DoT, suggested that the
government could consider auctioning the spectrum, which will
be released on cancellation of a few licenses, and that price
should be considered for future allotment. TRAI has also issued
recommendation regarding the reframing and repricing of the
spectrum. The recommended increase in spectrum charges,
if executed, will negatively impact the incumbents. The policy
uncertainty during the quarter led to the underperformance of
telecom stocks, despite improving outlook for incumbents.
MNP - A non-event for the sector: The initial data released by
TRAI shows that 3.8mn or 0.5% of the total subscriber base has
opted for MNP, which is not a significant number. Reports indicate
that Airtel, Idea and Vodafone were the key beneficiaries of
MNP and RCOM was among players who lost subscribers.
3G launch by private players to aid growth: Most telecom
players have launched 3G services in select areas, which will
aid revenue growth and overall profitability in the next few
quarters by stabilising average revenue per user (ARPU) and
average revenue per minute (ARPM). The offered pricing of 3G
services rules out the possibility of any irrational pricing and
will give a respite to the price war in the industry.
Incumbents witness strong subscriber additions
Over December 2010-February 2011, the Indian subscriber
base grew at an average rate of 2.6% mom. Amongst the
incumbents, Airtel, RCOM, Vodafone and BSNL grew at an
average rate of 2.1-2.7% mom, whereas Idea and Aircel
outperformed by growing at average rates of 3.1% and 3.3%
mom, respectively. New entrants, including Uninor, Loop Mobile,
Etisalat and S Tel, grew at average rates of 8.3%, 0.6%, 73.1%
and 8.1%, respectively, while Videocon declined at an average
rate of 10.9% mom.
Thus, a trend was spotted with most of the incumbents
(Vodafone, Idea, RCOM and Aircel) maintaining or inching up
their subscriber market share over December 2010-February
2011. Airtel and BSNL, however, lost their market shares slightly
to 20.2% and 10.8% in February 2011 from 20.4% and 10.9%
in December 2010, respectively.
Subscriber market share of new entrants such as Loop Mobile
and S Tel remained constant at 0.4% and 0.3%, respectively,
whereas Videocon lost its market share to 0.8% in February
2011. However, Uninor's market share increased to 2.7% in
February 2011
ARPM to remain flat
ARPM has been registering free fall at a ~5% CQGR over the
past nine quarters on the back of entry of new players and the
price war. However, the price war logged by these new entrants
has turned into a curse for their own sustainability.
The confidence in no further possibility of a price war was
instilled by the rational pricing move by various telecom players,
i.e. no case of undercutting. Therefore, we expect ARPM to
remain flat qoq for Airtel and Idea, while we expect a 1.6%
qoq decline for RCOM in 4QFY2011.
ARPUs to decline
For 4QFY2011, we expect the combination of flat ARPM and
weak MOU to pull down ARPU by 2.1%, 2.5% and 5.2% qoq
for Airtel, Idea and RCOM, respectively.
EPMs to remain stableFor 4QFY2011, we expect EBITDA per minute (EPM) to remain
flat for Idea. However, for Airtel, we expect EPM to witness a
slight decline due to stable ARPM, marginal dip in MOU and
strong subscriber growth. Further, for RCOM, we expect EPM
to inch up slightly on the back of strong subscriber growth.
Outlook and valuation
For 4QFY2011, we expect revenue growth to be driven by strong
growth in subscriber base, flat ARPM and growing VAS share
in mobility revenue. We expect Idea, Airtel (including Zain) and
RCOM to register qoq revenue growth of 4.6%, 4.7% and 6.5%
qoq, respectively. On the EBITDA margin front, we expect Airtel
to record an expansion of 78bp qoq to 32.4% due to lower
personnel cost and decreasing network operating expense
(NOE) with higher subscribers per cell site. Idea and RCOM
are also expected to post EBITDA margin expansion of 140bp
and 157bp qoq to 25.4% and 33.0%, respectively.
The sector continues to be haunted by issues related to the 2G
scam. We believe industry dynamics point toward a possible
consolidation in the long run and expect only few operators,
including Airtel, Vodafone, RCOM, BSNL, Aircel, Idea and TTSL,
to survive out of the current 15 operators. Airtel continues to be
our preferred pick amongst telcos due to its low-cost integrated
model (owned tower infrastructure), potential opportunity to
scale up in Africa, established leadership in revenue and
subscriber market share, and relatively better KPIs.
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