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India Equity Research Reports, IPO and Stock News
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Hike amid market-share loss
In a positive move Bharti Airtel has raised tariffs by 20% albeit only for
calls on the same network, for new subscribers and in six of 22 circles,
limiting the upside to 1% on consolidated earnings. While Bharti’s rate
hike is targeted at improving core mobile business, if this is not matched
by key competitors it could result in further market-share loss. In these
six circles, Bharti has seen a 460bps QoQ drop in revenue market share.
At 15x FY13CL earnings, we believe the stock is factoring in the turn in
earnings but does not recognise risks of US$5-6bn in regulatory
payments for spectrum. Maintain Underperform.
Selective rate hike limits financial upside.
In a positive move Bharti Airtel has raised mobile tariffs by 20% from Rs0.01/sec
to 0.012/second however this is only for calls on the same network, for “new”
subscribers and in six of 22 circles across India. Typically, existing Airtel
subscribers on per-second plans have a tariff validity of one year which changes
only at the end of the year, and/or if subscribers fail to recharge within six
months. Our analysis reveals that although a rate hike results in 4% increase in
revenue per minute (RPM) the earnings impact is limited to 1% with six circles,
even if 50% of subscribers face a hike and with no change on usage. Should
usage be just 5% lower, upside is negligible. Prepaid subscribers typically
recharge based on “spend” rather than “usage” therefore adverse impact on
minutes of usage is likely. We await the spill of these hikes in the balance 16
circles and counter offers by key competitors.
Hike amid market-share loss and awaited consolidation.
While Bharti’s rate hike is targeted at improving core mobile business, if this is not
matched by key competitors it could result in further market-share loss. In these
six circles, which account for 40% of mobile revenue, Bharti has seen a
460bps QoQ drop in revenue market share (110bps QoQ on all India basis to
30%). Also, while we eventually expect Bharti to gain from sector consolidation,
for now the M&A guidelines are still awaited and may keep Bharti away from being
an active participant. The key hurdles for Bharti will be proposals to further limit
the market share of a combined entity at 30% of subscribers as well as adjusted
gross revenue in the circles (from 40% now) and that post merger total spectrum
cannot exceed 14.4MHz (GSM).
Telecom minister ‘No operator paid for 2G spectrum since 2002’.
Even as the New Telecom Policy 2011 is expected only in October, the latest
statement by the telecom minster reiterates the high regulatory overhang also for
incumbents. Kapil Sibal has said: ‘Since 2002 none of the operators (incumbents
as well as new licensees of 2008) have paid for 2G spectrum other than the entry
fee and also that the upcoming policy will delink licence from spectrum.’ This
again brings alive the risk of US$5-6bn of regulatory payments on spectrum for
Bharti. These include US$800m for excess 2G spectrum >6.2MHz, US$2.7bn NPV
for 2G licence renewals, besides investments required to complete spectrum
footprint in 3G (nine circles) and 4G (18 circles). Further spectrum auctions will
likely be at end-FY12, after the New Telecom Policy 2011. Meanwhile, the stock’s
valuations at 15x FY13CL earnings leave no room for negative surprises. We
maintain our Underperform with Rs395 target price.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Hike amid market-share loss
In a positive move Bharti Airtel has raised tariffs by 20% albeit only for
calls on the same network, for new subscribers and in six of 22 circles,
limiting the upside to 1% on consolidated earnings. While Bharti’s rate
hike is targeted at improving core mobile business, if this is not matched
by key competitors it could result in further market-share loss. In these
six circles, Bharti has seen a 460bps QoQ drop in revenue market share.
At 15x FY13CL earnings, we believe the stock is factoring in the turn in
earnings but does not recognise risks of US$5-6bn in regulatory
payments for spectrum. Maintain Underperform.
Selective rate hike limits financial upside.
In a positive move Bharti Airtel has raised mobile tariffs by 20% from Rs0.01/sec
to 0.012/second however this is only for calls on the same network, for “new”
subscribers and in six of 22 circles across India. Typically, existing Airtel
subscribers on per-second plans have a tariff validity of one year which changes
only at the end of the year, and/or if subscribers fail to recharge within six
months. Our analysis reveals that although a rate hike results in 4% increase in
revenue per minute (RPM) the earnings impact is limited to 1% with six circles,
even if 50% of subscribers face a hike and with no change on usage. Should
usage be just 5% lower, upside is negligible. Prepaid subscribers typically
recharge based on “spend” rather than “usage” therefore adverse impact on
minutes of usage is likely. We await the spill of these hikes in the balance 16
circles and counter offers by key competitors.
Hike amid market-share loss and awaited consolidation.
While Bharti’s rate hike is targeted at improving core mobile business, if this is not
matched by key competitors it could result in further market-share loss. In these
six circles, which account for 40% of mobile revenue, Bharti has seen a
460bps QoQ drop in revenue market share (110bps QoQ on all India basis to
30%). Also, while we eventually expect Bharti to gain from sector consolidation,
for now the M&A guidelines are still awaited and may keep Bharti away from being
an active participant. The key hurdles for Bharti will be proposals to further limit
the market share of a combined entity at 30% of subscribers as well as adjusted
gross revenue in the circles (from 40% now) and that post merger total spectrum
cannot exceed 14.4MHz (GSM).
Telecom minister ‘No operator paid for 2G spectrum since 2002’.
Even as the New Telecom Policy 2011 is expected only in October, the latest
statement by the telecom minster reiterates the high regulatory overhang also for
incumbents. Kapil Sibal has said: ‘Since 2002 none of the operators (incumbents
as well as new licensees of 2008) have paid for 2G spectrum other than the entry
fee and also that the upcoming policy will delink licence from spectrum.’ This
again brings alive the risk of US$5-6bn of regulatory payments on spectrum for
Bharti. These include US$800m for excess 2G spectrum >6.2MHz, US$2.7bn NPV
for 2G licence renewals, besides investments required to complete spectrum
footprint in 3G (nine circles) and 4G (18 circles). Further spectrum auctions will
likely be at end-FY12, after the New Telecom Policy 2011. Meanwhile, the stock’s
valuations at 15x FY13CL earnings leave no room for negative surprises. We
maintain our Underperform with Rs395 target price.
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