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Telecom
During 1QFY2012, all telecom stocks (ex. RCom) gained, with
Bharti Airtel (Bharti) and Idea pacing up by 10.0% and 21.0%,
respectively. This was primarily due to strong subscriber net
additions, positive MNP outcome and fading knee-jerk reaction
towards the possible outcomes of National Telecom Policy 2011
due to recommendation regarding the re-pricing and re-framing
of the spectrum and its charges
However, RCom underperformed significantly during the quarter,
slipping by 12.9% because of the arrest of few of its senior
officers along with the promoters of DB-Etisalat on account of
their possible links in the 2G scam.
MNP recording a secular trend
Since the launch of MNP in January 2011, a secular trend is
emerging in which incumbents such as Vodafone, Idea and
Bharti are proving to be net gainers in the mentioned pecking
order; whereas, the highest net looser has been RCom, both
for its GSM and CDMA subscriber base. BSNL has also been
losing out subscribers to other incumbents. Till date, the Indian
mobile market has seen ~11mn users opting for MNP, which
although is insignificant at ~1.3% of subscriber base, but the
trend emerging from the applications clearly suggests that the
above-mentioned players are proving to be the front-runners
in gaining market share.
VLR data points favourable for tier-I companies
As per the recent VLR data released for April 2011, out of the
total 826.93mn subscribers, 583.22mn subscribers (70.5%)
were active subscribers on the date of Peak VLR. Service provider
wise, Idea leads the tally with a share of 92.92%, followed by
Bharti with 89.51%, Vodafone with 80.78% and RCom with
63.64%, whereas Etisalat is at the bottom with 31.47%.
RMS vs. SMS
As per the revenue market share (RMS) data for 4QFY2011,
Bharti leads at 31% with subscriber market share (SMS) of 20%,
whereas Idea’s RMS and SMS stand at 13.9% and 11.1%,
respectively. RMS for Bharti and Idea is higher than SMS, which
indicates that the quality of subscribers added by these
companies is good. On the contrary, in case of RCom, SMS is
at 17%, which is much ahead of RMS that is only at 8.2%.
This is evident from the ARPU profile of these companies
Telecom
Thus, though the pace of subscriber addition sported by each
of the companies remains at 2mn-2.5mn per month, additions
made by Bharti and Idea are value additions, whereas for RCom
it is more of a volume addition. Amongst unlisted companies,
Vodafone is also part of the Bharti-Idea clan with higher RMS
at 21.2% and SMS at 16.7%, whereas incumbents such as BSNL
and Aircel are part of RCom's clan with SMS higher than RMS
Incumbents continue to post strong subscriber addition
Over March-May 2011, the Indian subscriber base grew at an
average rate of 1.7% mom, led by incumbents such as Bharti,
Vodafone and Idea. However, net subscriber addition numbers
were the lowest in the last one year. Amongst incumbents,
subscriber growth was led by Idea at 2.3% mom, followed by
Aircel, Vodafone, Bharti, RCom and BSNL, which grew at an
average rate of 2.0%, 1.8%, 1.5%, 1.5% and 0.7% mom,
respectively
New entrants, including Etisalat, Uninor, S Tel and Loop Mobile,
grew at average rates of 15.9%, 5.5%, 5.9% and 0.6%,
respectively, while Videocon declined at an average rate of 0.4%
mom. Although subscriber base of all telecom players reported
growth, net addition run rate slided steeply for every player in
April-May 2011. Thus, a trend was spotted with most incumbents
(Bharti, Vodafone, Idea and Aircel) maintaining their subscriber
market share over March-May 2011, whereas RCom and BSNL
lost their market shares slightly to 16.9% and 10.5% in
May 2011 from 17.0% and 10.7% in March 2011, respectively.
MOUs to remain flat
In 4QFY2011, Idea and RCom experienced a decline in minutes
of usage (MOU), while Bharti (excluding Africa) reported flat
MOU on the back of robust subscriber growth. For 1QFY2012,
we expect MOU of Bharti (excluding Africa), Idea and RCom to
remain flat at 449min, 397min and 241min, respectively
VAS share to grow
We expect VAS share in the mobility revenue of Bharti and Idea
to increase in 1QFY2012, which would arrest the downside in
average revenue per minute (ARPM) due to lower voice ARPM
resulting in from higher growth in B and C circles. We expect
VAS share as a percentage of mobility revenue to grow by 50bp
and 10bp qoq to 15.5% and 12.2% for Bharti (excluding Africa)
and Idea, respectively.
ARPM to remain flat
ARPM has been following a declining trend over the past nine
quarters due to 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 made by various telecom players for 3G, i.e. no case of
undercutting. Therefore, for 1QFY2012, we expect ARPM for
Bharti (excluding Africa) to increase by 4.6% qoq to
`0.45/min; however, for Idea and RCom, ARPM is expected to
be stable on a qoq basis.
ARPUs to decline marginally
For 1QFY2012, we expect the combination of flat MOU, flat
ARPM and soft subscriber addition to pull down the average
revenue per user (ARPU) of Bharti (excluding Africa), Idea
and RCom by 0.8%, 1.9% and 1.0% qoq to `192/month,
`164/month and `106/month, respectively.
EPMs to inch up (ex. RCom)
For 1QFY2012, we expect EBITDA per minute (EPM) to remain
almost flat for Idea, while a slight uptick is expected for Bharti
and RCom on account of stable MOU and APRM and increased
share of VAS in mobility revenue.
Outlook and valuation
For 1QFY2012, we expect revenue growth to be driven by decent
growth in subscriber base, flat voice ARPM and higher share of
VAS in mobility revenue. Amongst the top three operators,
we expect Bharti to post revenue growth of 5.8% qoq. Idea and
RCom are expected to post revenue growth of 4.8% and 3.9%
qoq, respectively. On the EBITDA margin front, we expect
margins of Bharti, Idea and RCom to expand by 172bp, 63bp
and 407bp (higher growth due to low base effect) qoq to 35.2%,
26.0% and 28.2%, respectively. Players in the sector (especially
RCom and Etisalat) continue 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 select
few operators, including Bharti, Vodafone, RCom, Idea, BSNL,
Aircel and Uninor, to be the survivors out of the current 15
operators. Amongst the listed players, Bharti is a better bet 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. However, overall we remain Neutral on the telecom sector.
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