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Analyzing currency fluctuation impact on India/ASEAN telcos
Major foreign currency exposure for telcos is on debt and capex
In this report, we highlight the impact of Asian currency movements on
operators’ debt /capex and hence on earnings/valuations for our coverage.
Our analysis indicates that telcos earnings are not materially impacted (2%-
4% downside on average assuming 10% depreciation) as the majority of
their revenues/costs are in local currencies and any MTM (mark-to-market)
impact due to currency fluctuations on debt (45% of total debt in our
coverage is foreign debt) is mainly taken through the balance sheet. The
impact on FCF is 5%-11% as the majority of capex (c. 90%) is dollar
denominated. Our implied values on avg. decline 1%-5% with major impact
being on Indian telcos as a larger potion of their debt is unhedged.
Bharti/RCOM impacted more; ASEAN telcos are better positioned
Amongst Indian telcos, we find Idea as the best positioned operator (our
top pick in Indian telcos) given relatively lower forex exposure and Bharti/
RCOM as more impacted as they have higher un-hedged debt. We est. the
impact of 10% depreciation to be 9.8%/5.5% for RCOM/Bharti on implied
values and 1.9% for Idea. While ASEAN telcos are currently not seing
major currency fluctuations (although IDR, THB, PHP have depreciated
3.8%/4.0%/3.9% in the last 1 month), we see the impact to be limited even if
the local currency depreciates as the proportion of foreign debt is low and
the majority of their debt is hedged. In fact, an operator like PLDT benefits
on revenue/EBITDA due to a depreciating local currency as c. 26% of its
revenues (majority of them being BPO) are USD denominated, assuming
no negative impact from US slowdown. In ASEAN telcos, we find AIS and
DTAC as best positioned operators for any adverse currency movement
given very low foreign unhedged debt and est. a 7.5%/4.9% negative
impact on our implied values of Indosat/XL if IDR depreciates 10% vs. US$.
We est. impact of fluctuations on Bharti’s implied value to be 5.5%
We note that the majority of the forex impact of c. US$ 10 bn debt will be
reflected through the balance sheet (and not P&L) as per the IFRS
accounting policy – thus reducing impact on earnings. The impact of recent
currency movements on FY12E earnings is Rs 8.0 bn or 12.9% of EPS and
5.5% on our implied value. We note Bharti’s stock price is down 15.0% (vs.
Sensex down 11.7%) since INR started depreciating (early-Aug) and
therefore think that currency impact has been largely factored into the
current stock price. Reiterate Buy on Bharti.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Analyzing currency fluctuation impact on India/ASEAN telcos
Major foreign currency exposure for telcos is on debt and capex
In this report, we highlight the impact of Asian currency movements on
operators’ debt /capex and hence on earnings/valuations for our coverage.
Our analysis indicates that telcos earnings are not materially impacted (2%-
4% downside on average assuming 10% depreciation) as the majority of
their revenues/costs are in local currencies and any MTM (mark-to-market)
impact due to currency fluctuations on debt (45% of total debt in our
coverage is foreign debt) is mainly taken through the balance sheet. The
impact on FCF is 5%-11% as the majority of capex (c. 90%) is dollar
denominated. Our implied values on avg. decline 1%-5% with major impact
being on Indian telcos as a larger potion of their debt is unhedged.
Bharti/RCOM impacted more; ASEAN telcos are better positioned
Amongst Indian telcos, we find Idea as the best positioned operator (our
top pick in Indian telcos) given relatively lower forex exposure and Bharti/
RCOM as more impacted as they have higher un-hedged debt. We est. the
impact of 10% depreciation to be 9.8%/5.5% for RCOM/Bharti on implied
values and 1.9% for Idea. While ASEAN telcos are currently not seing
major currency fluctuations (although IDR, THB, PHP have depreciated
3.8%/4.0%/3.9% in the last 1 month), we see the impact to be limited even if
the local currency depreciates as the proportion of foreign debt is low and
the majority of their debt is hedged. In fact, an operator like PLDT benefits
on revenue/EBITDA due to a depreciating local currency as c. 26% of its
revenues (majority of them being BPO) are USD denominated, assuming
no negative impact from US slowdown. In ASEAN telcos, we find AIS and
DTAC as best positioned operators for any adverse currency movement
given very low foreign unhedged debt and est. a 7.5%/4.9% negative
impact on our implied values of Indosat/XL if IDR depreciates 10% vs. US$.
We est. impact of fluctuations on Bharti’s implied value to be 5.5%
We note that the majority of the forex impact of c. US$ 10 bn debt will be
reflected through the balance sheet (and not P&L) as per the IFRS
accounting policy – thus reducing impact on earnings. The impact of recent
currency movements on FY12E earnings is Rs 8.0 bn or 12.9% of EPS and
5.5% on our implied value. We note Bharti’s stock price is down 15.0% (vs.
Sensex down 11.7%) since INR started depreciating (early-Aug) and
therefore think that currency impact has been largely factored into the
current stock price. Reiterate Buy on Bharti.
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