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Indian Telecoms
Sector revenue growth impacted by seasonality
Sector revenues remained flat in 2QFY12 on account of
seasonality; Bharti sees c70bps revenue market share loss
Vodafone India and Uninor each saw a c30bps gain in revenue
market share
Bharti Airtel remains our preferred pick (OW, TP INR475)
As per TRAI’s financial data for the quarter ended September 2011, wireless revenues for
the Indian telecom sector remained flat on a sequential basis, primarily on account of
seasonality. The quarter was particularly disappointing for Bharti Airtel (BHARTI IN,
INR378.70, OW) as it saw a c70bps revenue market share loss. Vodafone India (not listed) and
Uninor (not listed) posted marginal increases in their revenue market share of c30bps each. For
the rest of the players there were no meaningful changes in their revenue market share.
Bharti impacted by seasonality: 2QFY12 mobile revenues were adversely affected by
seasonality and this has been a consistent phenomenon across the sector. A key reason for the
seasonality is lower rural income and movement of migrant population back to their home
towns during the quarter. We believe Bharti’s loss in revenue market share (RMS) was more to
do with the fact that it has the highest number of rural subscribers. Separately the markets
where Bharti recorded the highest decline were Rajasthan and Madhya Pradesh (MP). Notably
the RMS loss of Bharti in Madhya Pradesh was driven by a meaningful gain by BSNL, which
in our view may not be sustainable. Gains by Vodafone India and Idea (IDEA IN, INR 98.45,
N) impacted the revenue share in Rajasthan for Bharti.
Uninor’s focus on subscriber acquisition allowed it to improve its revenue market share by
0.32%. We note that while incumbents hiked tariffs and rationalised subscriber acquisition,
Uninor not only continued with lower/discounted tariffs but also used this opportunity to
become aggressive on subscriber acquisition. In our view, incumbent operators are likely to
respond if the trend persists for couple of more quarters. However, the response will probably
not lead to a roll-back of tariff hikes. Incumbent operators may selectively get a bit aggressive
on subscriber acquisition, in our view.
Sector outlook: We view the recent tariff hikes as positive and sustainable. We expect a
c3% growth in minutes over the next two quarters and this, combined with the benefit
from tariff hikes, should imply sector revenue growth of c5%.
Bharti Airtel remains our preferred pick: We are not concerned by the decline in
revenue market share this quarter as we read it as an impact of seasonality. We value
Bharti using a blend of SOTP-based DCF analysis and PE which yields an unchanged
target price of INR475. A key downside risk for the stock would be significant declines in
termination charges.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Indian Telecoms
Sector revenue growth impacted by seasonality
Sector revenues remained flat in 2QFY12 on account of
seasonality; Bharti sees c70bps revenue market share loss
Vodafone India and Uninor each saw a c30bps gain in revenue
market share
Bharti Airtel remains our preferred pick (OW, TP INR475)
As per TRAI’s financial data for the quarter ended September 2011, wireless revenues for
the Indian telecom sector remained flat on a sequential basis, primarily on account of
seasonality. The quarter was particularly disappointing for Bharti Airtel (BHARTI IN,
INR378.70, OW) as it saw a c70bps revenue market share loss. Vodafone India (not listed) and
Uninor (not listed) posted marginal increases in their revenue market share of c30bps each. For
the rest of the players there were no meaningful changes in their revenue market share.
Bharti impacted by seasonality: 2QFY12 mobile revenues were adversely affected by
seasonality and this has been a consistent phenomenon across the sector. A key reason for the
seasonality is lower rural income and movement of migrant population back to their home
towns during the quarter. We believe Bharti’s loss in revenue market share (RMS) was more to
do with the fact that it has the highest number of rural subscribers. Separately the markets
where Bharti recorded the highest decline were Rajasthan and Madhya Pradesh (MP). Notably
the RMS loss of Bharti in Madhya Pradesh was driven by a meaningful gain by BSNL, which
in our view may not be sustainable. Gains by Vodafone India and Idea (IDEA IN, INR 98.45,
N) impacted the revenue share in Rajasthan for Bharti.
Uninor’s focus on subscriber acquisition allowed it to improve its revenue market share by
0.32%. We note that while incumbents hiked tariffs and rationalised subscriber acquisition,
Uninor not only continued with lower/discounted tariffs but also used this opportunity to
become aggressive on subscriber acquisition. In our view, incumbent operators are likely to
respond if the trend persists for couple of more quarters. However, the response will probably
not lead to a roll-back of tariff hikes. Incumbent operators may selectively get a bit aggressive
on subscriber acquisition, in our view.
Sector outlook: We view the recent tariff hikes as positive and sustainable. We expect a
c3% growth in minutes over the next two quarters and this, combined with the benefit
from tariff hikes, should imply sector revenue growth of c5%.
Bharti Airtel remains our preferred pick: We are not concerned by the decline in
revenue market share this quarter as we read it as an impact of seasonality. We value
Bharti using a blend of SOTP-based DCF analysis and PE which yields an unchanged
target price of INR475. A key downside risk for the stock would be significant declines in
termination charges.
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