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Strongest domestic player going global…
�� Leader in domestic market, tapping new geographies for growth
• Airtel is the largest telecom operator in India with revenue share
of 31% and subscriber share of 20%. Revenue share has
increased from 28% in 2008 to over 31% in 2011, even though
operators per circle have increased from 7 to 13. This signifies the
healthy subscriber quality and growing brand preference. With
imminent consolidation in the industry, Airtel would further
strengthen its dominance in the years to come.
• With only 3-4 3G players per circle, competitive positioning would
be similar to golden period of 2G. Airtel is expected to have 15-
20% 3G subscribers and garner ~25% market share in 3G
services with 2-2.5x 2G ARPU.
• Airtel is present in 16 African countries which have combined
penetration level of ~33%. Penetration in India also stood at
similar levels in 2009 and has more than doubled in last two
years. India-like hyper-intensive competition is unlikely in Africa.
This may lead to revenue growing about 1.5x-2x in Africa
• Going ahead
• Declining competitive intensity in domestic market to result in
softening pace of KPI (Key performance indicators) deterioration.
ARPU would stabilize in a couple of years with increasing 3G
penetration. Data contribution expected to double from ~12% in
next few years.
• Increase in 3G penetration to ~15-20% to contribute to revenue
and EBITDA growth; most of the fixed cost is already factored in.
• Airtel would start generating ~| 20000 crore free cash flow year
on year in a couple of year from now; enough to repay its entire
debt of about ~| 53000 crore in next few years.
• Revenue to grow fastest in the industry on back of African
operations with penetration level of ~33% versus ~67% for India.
Valuation
Airtel has commanded a premium to its peers on account of industry
dominance, clean image and good management, and has appreciated the
most in the last 12 months. We believe the premium would further
expand with healthy regulatory environment, uptick in 3G services,
exponential growth and subsequent turnaround in African operations.
We recommend the stock to be accumulated.
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