Telecom Sector…Upgraded to HOLD :: IndiaNivesh

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On back of expected increase in competitive intensity (Post Reliance-JIO launches)
and upcoming spectrum auction (Feb-2014) telecom stocks corrected significantly.
Despite strong quarterly performance, in last three months, Bharti/Idea corrected
~14.1% each. Post this correction; Bharti/Idea is trading at 6.2x/6.4x FY16E EV/
EBITDA estimates, which at the lower end of valuation band. In our view, at current
valuation the stock price factors major negatives. We Upgrade rating to HOLD
from SELL on Bharti/Idea with TP price of Rs.399/Rs.167, respectively.
Increase in debt burden is well factored in the stock prices…
 The risk of higher cash outflow going-ahead due to following: (1) 20% increase
in TRAI recommended base price in upcoming spectrum auction, and (2)
urgency to fill the spectrum gap in order to improve performance of 3G
services is very well factored in telcos stock prices.
 In our view, spectrum auction could lead to increase in debt burden for Bharti
and Idea by ~Rs 81bn and ~Rs 86bn, respectively. Our estimates includes on
an average 30%/47% increase in Telecom Commission (Ex. 20% discount given
by TRAI) recommended base price for Bharti and Idea. Our estimates also
consider ~100% base price increase in few key locations for both Bharti (AP)
and Idea (AP, Maharashtra, MP)