Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
MTNL
Upgrade to N: A lot depends on spectrum monetization
While MTNL faces significant operational challenges, spectrum
monetization should provide downside support
Poor spectrum utilization on GSM suggests that MTNL is better
off monetizing spectrum than a roll-out by itself
Cut TP to INR39 (from INR59); upgrade to N (remove V-flag)
from UW(V) after the recent stock price correction
MTNL faces significant operation challenges given its fragmented quad play strategies,
debilitating institutional culture of state-owned enterprises (SOE), loss in revenue market
share, and increase in employee costs. While there are no obvious operational catalysts for the
stock, we believe it can benefit from spectrum monetization. The company is pursuing intracircle roaming deals on 3G and may adopt the same strategy for BWA spectrum. On the other
hand, with GSM incumbents looking to offload data card-driven demand and keep 3G
spectrum free, we believe there is a case for MTNL to monetize CDMA spectrum as well
(similar to the recent deal between Vodafone and Sistema Shyam).
However, there are few concerns which would limit upside for the company – namely poor
network coverage, lack of willingness on MTNL’s part to enter into longer-term deals
(as evidenced from its 3G proposal which is based on a three-year format) and the present
regulatory chaos. In spite of these concerns, we believe monetizing spectrum is a better option
for the company than a roll-out by itself, very much evidenced from significant poor spectrum
efficiency on GSM services (refer Figure 1). From a timing perspective, we believe 3G will be
the first to materialize and should conclude over the next 6-9 months, LTE may take time and
may not happen till the next fiscal year but there should be strong demand, and CDMA
monetization could happen anytime soon. We see robust demand for the LTE spectrum held
by the company as none of the top four operators bagged this spectrum and with balance sheet
pressures faced by the sector, there will be a preference for intra-circle roaming (refer Fig 2).
Upgrade to Neutral from UW(V) – We cut our TP to INR39 (INR59 earlier); however,
on back of the recent stock price correction, we upgrade the stock to N (and remove the
volatility indicator) from UW(V). Our fair value of the business has two parts – the value
of core business in the current form (without considering any restructuring) and value
from spectrum monetization. We value the core operations at INR17 per share and
spectrum monetization at INR22 per share. Our target price of INR39 per share implies a
price to book of 0.32 (vs. one-year average at 0.35). Key upside risk for the stock would
be a reduction in employee costs (its proposal to voluntarily retire 15,000 employee would
raise valuations by INR30 per share, by our estimates) and merger with sister company
BSNL (already being discussed and evaluated by the government). Key downside risk
would be no progress on spectrum monetization over the next 12-18 months.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
MTNL
Upgrade to N: A lot depends on spectrum monetization
While MTNL faces significant operational challenges, spectrum
monetization should provide downside support
Poor spectrum utilization on GSM suggests that MTNL is better
off monetizing spectrum than a roll-out by itself
Cut TP to INR39 (from INR59); upgrade to N (remove V-flag)
from UW(V) after the recent stock price correction
MTNL faces significant operation challenges given its fragmented quad play strategies,
debilitating institutional culture of state-owned enterprises (SOE), loss in revenue market
share, and increase in employee costs. While there are no obvious operational catalysts for the
stock, we believe it can benefit from spectrum monetization. The company is pursuing intracircle roaming deals on 3G and may adopt the same strategy for BWA spectrum. On the other
hand, with GSM incumbents looking to offload data card-driven demand and keep 3G
spectrum free, we believe there is a case for MTNL to monetize CDMA spectrum as well
(similar to the recent deal between Vodafone and Sistema Shyam).
However, there are few concerns which would limit upside for the company – namely poor
network coverage, lack of willingness on MTNL’s part to enter into longer-term deals
(as evidenced from its 3G proposal which is based on a three-year format) and the present
regulatory chaos. In spite of these concerns, we believe monetizing spectrum is a better option
for the company than a roll-out by itself, very much evidenced from significant poor spectrum
efficiency on GSM services (refer Figure 1). From a timing perspective, we believe 3G will be
the first to materialize and should conclude over the next 6-9 months, LTE may take time and
may not happen till the next fiscal year but there should be strong demand, and CDMA
monetization could happen anytime soon. We see robust demand for the LTE spectrum held
by the company as none of the top four operators bagged this spectrum and with balance sheet
pressures faced by the sector, there will be a preference for intra-circle roaming (refer Fig 2).
Upgrade to Neutral from UW(V) – We cut our TP to INR39 (INR59 earlier); however,
on back of the recent stock price correction, we upgrade the stock to N (and remove the
volatility indicator) from UW(V). Our fair value of the business has two parts – the value
of core business in the current form (without considering any restructuring) and value
from spectrum monetization. We value the core operations at INR17 per share and
spectrum monetization at INR22 per share. Our target price of INR39 per share implies a
price to book of 0.32 (vs. one-year average at 0.35). Key upside risk for the stock would
be a reduction in employee costs (its proposal to voluntarily retire 15,000 employee would
raise valuations by INR30 per share, by our estimates) and merger with sister company
BSNL (already being discussed and evaluated by the government). Key downside risk
would be no progress on spectrum monetization over the next 12-18 months.
No comments:
Post a Comment