Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Telecom revenue in India contracted to only 2.4% of GDP in FY11 (17% below the OECD country
average). We believe sector revenue will double in the next five years led by relative price
stability, growing minute penetration and broadband usage. Top pick Bharti, closely followed by
Idea.
India’s telecom revenue looks set to double over the next five years
India’s telecom revenue contracted to 2.4% of GDP in FY11 (17% below the OECD country
average) from 2.9% in FY09, primarily led by significant price erosion (30%) over the past two
years. Sector revenue is significantly below that of other developed and developing markets,
underpinning growth prospects, in our view. India’s MoU/capita (205) is one-third that of the US
(602) and lower than China’s (221 as of Dec-09), showing significant under-penetration. We
believe India’s telecom sector revenue will double over the next five years, led by: 1) increased
minute penetration to 336 MoU/capita (about 50% of US MoU/capita); 2) relative price stability in
the voice business (versus a 30% decline over the past two years); and 3) increased wireless
broadband penetration to 5.4% by FY14 and 16% by FY16.
Structural improvement – price stability and consolidation
Pricing power is returning to operators as a result of: 1) lower competitive intensity due to limited
capacity additions by new operators; 2) new operators’ realisation that expansion is not viable
because of continuous high EBITDA losses at current tariffs (Uninor’s EBITDA loss has been
Rs8bn/quarter for the past six quarters); and 3) revenue market share (RMS) consolidation
among the top three operators in India. However, we expect blended revenue per minute to
increase marginally (1-2%) in FY13 and remain stable in FY14.
Who will benefit from structural improvement? Idea should be biggest beneficiary
We expect Bharti to maintain its leadership position in India, and Idea and Vodafone India to gain
market share. We believe Idea is likely to be the biggest beneficiary among listed peers owing to
higher minute market share gains and a reduction in its churn rate. A 1% reduction in its churn
rate is likely to have a 44bp positive impact on its EBITDA margin. We forecast FY11-14 EBITDA
CAGRs of 29.6% and 17.1% for Idea and Bharti, respectively.
Regulatory overhang remains; National Telecom Policy 2011 should provide stability
We estimate the regulator’s recommendations on spectrum pricing, if implemented, would have a
Rs29/share negative impact on Bharti (5% of fair value), a Rs23/share negative impact on Idea
(15% of FV), and a Rs14/share negative impact on RCom (14% of FV). We don’t believe the
recommendations will be implemented in their current form, as it would create an uneven playing
field. Our target prices factor in the negative impacts, providing a margin of safety against the
stocks’ fair values. Although regulatory uncertainty remains, the NTP’11 (expected by Oct/Nov)
should provide a stable regulatory outlook as it addresses known concerns (spectrum renewal
charges) and offers guidelines for consolidation
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Telecom revenue in India contracted to only 2.4% of GDP in FY11 (17% below the OECD country
average). We believe sector revenue will double in the next five years led by relative price
stability, growing minute penetration and broadband usage. Top pick Bharti, closely followed by
Idea.
India’s telecom revenue looks set to double over the next five years
India’s telecom revenue contracted to 2.4% of GDP in FY11 (17% below the OECD country
average) from 2.9% in FY09, primarily led by significant price erosion (30%) over the past two
years. Sector revenue is significantly below that of other developed and developing markets,
underpinning growth prospects, in our view. India’s MoU/capita (205) is one-third that of the US
(602) and lower than China’s (221 as of Dec-09), showing significant under-penetration. We
believe India’s telecom sector revenue will double over the next five years, led by: 1) increased
minute penetration to 336 MoU/capita (about 50% of US MoU/capita); 2) relative price stability in
the voice business (versus a 30% decline over the past two years); and 3) increased wireless
broadband penetration to 5.4% by FY14 and 16% by FY16.
Structural improvement – price stability and consolidation
Pricing power is returning to operators as a result of: 1) lower competitive intensity due to limited
capacity additions by new operators; 2) new operators’ realisation that expansion is not viable
because of continuous high EBITDA losses at current tariffs (Uninor’s EBITDA loss has been
Rs8bn/quarter for the past six quarters); and 3) revenue market share (RMS) consolidation
among the top three operators in India. However, we expect blended revenue per minute to
increase marginally (1-2%) in FY13 and remain stable in FY14.
Who will benefit from structural improvement? Idea should be biggest beneficiary
We expect Bharti to maintain its leadership position in India, and Idea and Vodafone India to gain
market share. We believe Idea is likely to be the biggest beneficiary among listed peers owing to
higher minute market share gains and a reduction in its churn rate. A 1% reduction in its churn
rate is likely to have a 44bp positive impact on its EBITDA margin. We forecast FY11-14 EBITDA
CAGRs of 29.6% and 17.1% for Idea and Bharti, respectively.
Regulatory overhang remains; National Telecom Policy 2011 should provide stability
We estimate the regulator’s recommendations on spectrum pricing, if implemented, would have a
Rs29/share negative impact on Bharti (5% of fair value), a Rs23/share negative impact on Idea
(15% of FV), and a Rs14/share negative impact on RCom (14% of FV). We don’t believe the
recommendations will be implemented in their current form, as it would create an uneven playing
field. Our target prices factor in the negative impacts, providing a margin of safety against the
stocks’ fair values. Although regulatory uncertainty remains, the NTP’11 (expected by Oct/Nov)
should provide a stable regulatory outlook as it addresses known concerns (spectrum renewal
charges) and offers guidelines for consolidation
No comments:
Post a Comment