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Indian Telecom Sector ----------------------------------------------------------------------------------------
Uninor Jun-11 results: Further comfort on reducing competitive intensity
● Telenor reported its June 2011 quarter results, with some detail
on its India operations—Uninor. Operating metrics at Uninor
remained stable: MoU was flat while RPM increased 1.5%. ARPU
grew 2% QoQ.
● Rise in RPM is a positive. During the call, management hinted at a
number of instances of operators increasing tariffs in the market.
Our recent channel checks had given us the same indication.
● Management is retaining EBITDA loss guidance for CY11 while
cutting capex target. We see this as a shift of focus from
expansion to profitability/returns. Management comments on the
higher efficiency of networks in India versus other countries could
have positive implications on investors’ perception of: (1) 3G
capex in India and (2) Bharti’s African operations.
● We believe that easing competition and surprise on data uptake
will continue to drive the outperformance of Indian telecom stocks.
We reiterate our OUTPERFORM rating on Bharti and Idea.
Stable operating metrics; RPM increases QoQ
Telenor reported its June 2011 quarter results on Thursday, with
some details on its Indian operations—Uninor (not listed).
Operating metrics were stable, with MoU staying flat QoQ and RPM
showing a 1.5% increase QoQ. Thus ARPU increased 2% QoQ.
Rise in RPM is surely a positive sign for the sector. However, we
would temper our excitement in extrapolating this trend to the overall
market, given Uninor’s low market share (~1% revenue share). We
believe RPM increase for Uninor could have been driven by
withdrawal/less aggression in pushing its dynamic 60% discount plans.
While revenue grew sharply (27% QoQ), EBITDA losses remained
largely flat (4% QoQ decline). Capex intensity came down sharply,
with quarterly capex down 40% QoQ.
EBITDA guidance retained, while capex guidance cut
Management retained its CY11 guidance for EBITDA loss (NOK4
bn/US$715 mn), while the guidance for capex was brought down to
the lower end of the earlier range of NOK1–1.5bn (US$180-270 mn).
We would read this as a sign of shift in focus from rapid expansion to
profitability.
Management explained that part of the reason for the cut in capex
guidance is the fact that they are able to achieve greater network
efficiencies (i.e. more number of minutes through the same network)
in India, compared with all their other markets. Interestingly, Telenor
management is now looking to transfer some of its learning from
running networks in India to other countries. The learning could also
be applied to 3G/4G networks in developed markets.
We see these as significant statements with the following read across
for the Indian telcos:
● It is likely that Indian operators could eventually see lower capex
for their 3G/4G rollouts than what a simple benchmarking versus
other countries would suggest.
● These comments give comfort on Bharti being able to replicate its
Indian minutes-based model to its African operations.
On the flip side, these comments could also be seen negatively—
Uninor is able to achieve its targeted network capacity with smaller
investment, giving it further room to compete in the market. However,
our recent channel checks (see our note Store visit indicates not only
are tariffs rising, retailer commissions are going down too dated 30
June) indicate that tariffs have started going up across operators.
During the call, Uninor management also commented that the market
is seeing tariff increases by operators in pockets. Further, Uninor has
chosen to reduce capex and pocket the savings rather than retain
capex and build a larger-than-targeted network. Management also
indicated that it does not plan any new circle launches other than the
13 already done.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Indian Telecom Sector ----------------------------------------------------------------------------------------
Uninor Jun-11 results: Further comfort on reducing competitive intensity
● Telenor reported its June 2011 quarter results, with some detail
on its India operations—Uninor. Operating metrics at Uninor
remained stable: MoU was flat while RPM increased 1.5%. ARPU
grew 2% QoQ.
● Rise in RPM is a positive. During the call, management hinted at a
number of instances of operators increasing tariffs in the market.
Our recent channel checks had given us the same indication.
● Management is retaining EBITDA loss guidance for CY11 while
cutting capex target. We see this as a shift of focus from
expansion to profitability/returns. Management comments on the
higher efficiency of networks in India versus other countries could
have positive implications on investors’ perception of: (1) 3G
capex in India and (2) Bharti’s African operations.
● We believe that easing competition and surprise on data uptake
will continue to drive the outperformance of Indian telecom stocks.
We reiterate our OUTPERFORM rating on Bharti and Idea.
Stable operating metrics; RPM increases QoQ
Telenor reported its June 2011 quarter results on Thursday, with
some details on its Indian operations—Uninor (not listed).
Operating metrics were stable, with MoU staying flat QoQ and RPM
showing a 1.5% increase QoQ. Thus ARPU increased 2% QoQ.
Rise in RPM is surely a positive sign for the sector. However, we
would temper our excitement in extrapolating this trend to the overall
market, given Uninor’s low market share (~1% revenue share). We
believe RPM increase for Uninor could have been driven by
withdrawal/less aggression in pushing its dynamic 60% discount plans.
While revenue grew sharply (27% QoQ), EBITDA losses remained
largely flat (4% QoQ decline). Capex intensity came down sharply,
with quarterly capex down 40% QoQ.
EBITDA guidance retained, while capex guidance cut
Management retained its CY11 guidance for EBITDA loss (NOK4
bn/US$715 mn), while the guidance for capex was brought down to
the lower end of the earlier range of NOK1–1.5bn (US$180-270 mn).
We would read this as a sign of shift in focus from rapid expansion to
profitability.
Management explained that part of the reason for the cut in capex
guidance is the fact that they are able to achieve greater network
efficiencies (i.e. more number of minutes through the same network)
in India, compared with all their other markets. Interestingly, Telenor
management is now looking to transfer some of its learning from
running networks in India to other countries. The learning could also
be applied to 3G/4G networks in developed markets.
We see these as significant statements with the following read across
for the Indian telcos:
● It is likely that Indian operators could eventually see lower capex
for their 3G/4G rollouts than what a simple benchmarking versus
other countries would suggest.
● These comments give comfort on Bharti being able to replicate its
Indian minutes-based model to its African operations.
On the flip side, these comments could also be seen negatively—
Uninor is able to achieve its targeted network capacity with smaller
investment, giving it further room to compete in the market. However,
our recent channel checks (see our note Store visit indicates not only
are tariffs rising, retailer commissions are going down too dated 30
June) indicate that tariffs have started going up across operators.
During the call, Uninor management also commented that the market
is seeing tariff increases by operators in pockets. Further, Uninor has
chosen to reduce capex and pocket the savings rather than retain
capex and build a larger-than-targeted network. Management also
indicated that it does not plan any new circle launches other than the
13 already done.
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