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Analysis of trends in 1Q FY12 (to Jun-11) lend support to our view of
improving operational trends. The Indian Telecom sector is clearly on a better
footing now than it has been over the past couple of years. One of the positive
triggers – tariff increases – has come earlier than expected and we expect the
next one – regulatory clarity – to come in the forefront by year-end. Bharti
and Tulip Telecom are our top picks.
Sustained volume growth: Wireless minutes grew 3-7% moderating only
slightly from the 3-9% growth rates seen in Q4FY11 despite monthly net
adds rates declining 25-33% Q/Q. We believe this highlights the efforts
across Bharti, Vodafone, Idea and Reliance Communications to focus on
revenue and minute generating net adds rather than pure customer
acquisition. This could have positive revenue and margin implications in the
quarters ahead.
Pricing trends stabilize, set to improve: ARPM trends improved across
Bharti, Vodafone, Idea and RCOM (-1% to +1%) after the aberration seen
in Q4. We estimate that even voice ARPMs were stable-to-increasing at
Bharti and Idea. We expect the upcoming quarters, especially in H2FY12, to
see the benefit of the recent tariff increases. Please see page 5-6 for details
of tariff changes by Bharti, Idea, Vodafone, RCOM and Tata.
Wireless margins better while capex declines Q/Q: Wireless margins
showed better trends in Q1 ranging from a slight 30bp decline to up 2.7pp at
Bharti, Idea and RCOM. Wireless capex spends declined sharply in Q1
confirming our view of a phased rollout of 3G networks and efficiency
benefits with current networks. 3G subs are at 2m+ each across the various
telcos. We don’t expect 3G revenue to be a meaningful contributor until
FY13. Please see Table 2 for a summary of 3G developments in Q1 vs. Q4.
Early Q2 expectations: Bearing in mind that Q2 tends to be a seasonally
weak quarter, we don’t expect net add numbers to decline much further in
Q2 from Q1 levels so we’re looking for 1-4% minute growth in Q2. We
expect Q2 ARPMs to start seeing the positive impact from tariff increases so
we forecast 1-7% growth in wireless revenue. We note that RCOM has not
expensed 3G related costs yet and we expect this to impact its net profit
starting in Q3 while Q2 may see a small impact.
Investment conclusions
Our analysis of the 1Q FY12 results (to Jun-11) from Bharti Airtel, Idea Cellular,
Reliance Communications and Vodafone (JPM Analyst: Akhil Dattani) lend
confidence to our view of improving operational trends in the industry. Key
highlights include:
1. Wireless minute growth sustained despite sharp declines in net add rates
2. ARPMs show improving trends with more to come given the recent tariff
increases
3. Wireless margins showed better trends in Q1 helped by lower net adds in
the quarter but also some cost efficiencies
4. Wireless capex declines across Bharti, Idea and RCOM in Q1
5. 3G rollouts appear on track with subscriber take-up following. We continue
to believe telcos will not rush to increase coverage/capacity in a hurry and
will invest based on circle-wise business case.
The Indian Telecom sector is clearly on a better footing now than it has been over the
past couple of years. One of the positive triggers – tariff increases – has come earlier
than expected and we expect the next one – regulatory clarity – to come in the
forefront by year-end. We continue to prefer Bharti over Idea Cellular and RCOM.
In this note we also take a quick look at Tulip Telecom and Tata Communications.
Tulip Telecom is our top pick outside of the large wireless players. The core
business continues to show improvement in both revenue growth and margin
expansion and the company has announced a client win for its data centre business.
For detailed company level takeaways from Q1 results please see:
Bharti Airtel Limited: 1Q FY12 wrap: Net income estimates lowered but
positive developments expected, published on August 4, 2011
Idea Cellular Limited: Q1'FY12 wrap: Strong margins and tariff increase
confirmed, 30 July 2011
Reliance Communications Limited: Q1'FY12 Wrap: Tariff increases
welcome but watching Global Enterprise and high-leverage, 16 August,
2011
Tulip Telecom Limited: FY12 off to a strong start; Reiterate OW, 29 July,
2011
Tata Communications Ltd: Q1'FY12 Wrap: Neotel consolidation weighs on
profitability; core business concerns remain, published on August 11, 2011
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Analysis of trends in 1Q FY12 (to Jun-11) lend support to our view of
improving operational trends. The Indian Telecom sector is clearly on a better
footing now than it has been over the past couple of years. One of the positive
triggers – tariff increases – has come earlier than expected and we expect the
next one – regulatory clarity – to come in the forefront by year-end. Bharti
and Tulip Telecom are our top picks.
Sustained volume growth: Wireless minutes grew 3-7% moderating only
slightly from the 3-9% growth rates seen in Q4FY11 despite monthly net
adds rates declining 25-33% Q/Q. We believe this highlights the efforts
across Bharti, Vodafone, Idea and Reliance Communications to focus on
revenue and minute generating net adds rather than pure customer
acquisition. This could have positive revenue and margin implications in the
quarters ahead.
Pricing trends stabilize, set to improve: ARPM trends improved across
Bharti, Vodafone, Idea and RCOM (-1% to +1%) after the aberration seen
in Q4. We estimate that even voice ARPMs were stable-to-increasing at
Bharti and Idea. We expect the upcoming quarters, especially in H2FY12, to
see the benefit of the recent tariff increases. Please see page 5-6 for details
of tariff changes by Bharti, Idea, Vodafone, RCOM and Tata.
Wireless margins better while capex declines Q/Q: Wireless margins
showed better trends in Q1 ranging from a slight 30bp decline to up 2.7pp at
Bharti, Idea and RCOM. Wireless capex spends declined sharply in Q1
confirming our view of a phased rollout of 3G networks and efficiency
benefits with current networks. 3G subs are at 2m+ each across the various
telcos. We don’t expect 3G revenue to be a meaningful contributor until
FY13. Please see Table 2 for a summary of 3G developments in Q1 vs. Q4.
Early Q2 expectations: Bearing in mind that Q2 tends to be a seasonally
weak quarter, we don’t expect net add numbers to decline much further in
Q2 from Q1 levels so we’re looking for 1-4% minute growth in Q2. We
expect Q2 ARPMs to start seeing the positive impact from tariff increases so
we forecast 1-7% growth in wireless revenue. We note that RCOM has not
expensed 3G related costs yet and we expect this to impact its net profit
starting in Q3 while Q2 may see a small impact.
Investment conclusions
Our analysis of the 1Q FY12 results (to Jun-11) from Bharti Airtel, Idea Cellular,
Reliance Communications and Vodafone (JPM Analyst: Akhil Dattani) lend
confidence to our view of improving operational trends in the industry. Key
highlights include:
1. Wireless minute growth sustained despite sharp declines in net add rates
2. ARPMs show improving trends with more to come given the recent tariff
increases
3. Wireless margins showed better trends in Q1 helped by lower net adds in
the quarter but also some cost efficiencies
4. Wireless capex declines across Bharti, Idea and RCOM in Q1
5. 3G rollouts appear on track with subscriber take-up following. We continue
to believe telcos will not rush to increase coverage/capacity in a hurry and
will invest based on circle-wise business case.
The Indian Telecom sector is clearly on a better footing now than it has been over the
past couple of years. One of the positive triggers – tariff increases – has come earlier
than expected and we expect the next one – regulatory clarity – to come in the
forefront by year-end. We continue to prefer Bharti over Idea Cellular and RCOM.
In this note we also take a quick look at Tulip Telecom and Tata Communications.
Tulip Telecom is our top pick outside of the large wireless players. The core
business continues to show improvement in both revenue growth and margin
expansion and the company has announced a client win for its data centre business.
For detailed company level takeaways from Q1 results please see:
Bharti Airtel Limited: 1Q FY12 wrap: Net income estimates lowered but
positive developments expected, published on August 4, 2011
Idea Cellular Limited: Q1'FY12 wrap: Strong margins and tariff increase
confirmed, 30 July 2011
Reliance Communications Limited: Q1'FY12 Wrap: Tariff increases
welcome but watching Global Enterprise and high-leverage, 16 August,
2011
Tulip Telecom Limited: FY12 off to a strong start; Reiterate OW, 29 July,
2011
Tata Communications Ltd: Q1'FY12 Wrap: Neotel consolidation weighs on
profitability; core business concerns remain, published on August 11, 2011
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