Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India: Telecom Services
Equity Research
Structural improvement warrants re-rating; add Bharti to CL-Buy
Add preferred pick Bharti to CL-Buy; also reiterate Buy on Idea
We add Bharti to our Conviction Buy List as we consider it to be the
operator best positioned to benefit from an improving regulatory
environment and declining competition. We also reiterate our Buy rating
on Idea, even after potential license cancellation notice for nine circles, as
we expect benefits from easing competitive environment in its incumbent
circles to more than offset an increase in re-bidding costs in its new circles.
Downside risks to competition and regulatory payments
We believe any potential license cancellation of new entrants would reduce
competition. Even if the new entrants rebid again to acquire spectrum,
their financial position would be weaker, in our view, thus giving
bargaining power to operators like Bharti/Vodafone to raise tariffs. In
addition, we see downside risks to regulatory payment related to excess
2G spectrum pricing for Bharti/Idea if the Telcos commission/TDSAT
decides to use the price determined in auction rather than TRAI-determined
prices. We believe any price determined in a potential 2G auction may be
lower than TRAI’s 2G excess spectrum pricing (Rs11/Rs5 for Bharti/Idea), as
the demand for 1800 MHz spectrum is relatively lower.
Target prices raised to factor in easing competition
We raise our Bharti/Idea FY13E-FY14E revenue estimates by 2%-3% to
factor in better than expected incremental revenue market share, as we
expect less intense competition from affected operators. Accordingly, our
FY13E/FY14E EPS increases by 5%/7% for Bharti and 9% /9% for Idea. Our
12-m SOTP-based TP thus increases by 11% to Rs475 for Bharti and 4% to
Rs111 for Idea. On FY13E/FY14E EPS, we are now 3%/10% ahead of
consensus for Bharti and 4%/8% ahead of consensus for Idea.
For Idea: Easing competition (Rs10) offsets rebid payment (Rs6)
As Idea’s new circles are EBITDA-negative, we believe Idea’s P&L without
these nine circles would have better EBITDA/EPS for FY13/FY14. Our pro
forma numbers imply 3%/17% increase in FY13E EBITDA/EPS if licenses
are cancelled. However, as we consider Idea to be a long-term committed
operator, we expect it to re-bid for spectrum in the upcoming 2G auction.
Our target price assumes Idea pays an amount equivalent to the winning
3G spectrum pricing (Rs6/share) to acquire spectrum in these circles.
Revisiting fundamentals: Adding Bharti to Conviction Buy List
We add Bharti to our Conviction Buy List as we consider it to be the operator best
positioned to benefit from the improving regulatory environment and declining
competition. Our revised 12-m SOTP-based target price of Rs475 (up 11%) implies 22%
potential upside from current levels. We also reiterate our Buy rating on Idea, despite risks
associated with 9 license cancellations, as even after penalizing the company with
incremental payment for re-acquiring spectrum, there is 18% potential upside to our new
12-month SOTP-based target price of Rs111.
License cancellation structurally positive for incumbents
Competition to decline, even after affected operators re-bid: We believe any potential
license cancellation of new entrants would reduce competition. Even if the new entrants
rebid again to acquire spectrum, their financial position would be weaker, in our opinion,
thus giving bargaining power to operators like Bharti/Vodafone to raise tariffs. We expect
incumbents like Bharti and Idea (in their strong circles) to continue to gain revenue market
share at the expense of new operators.
Downside risk to potential regulatory penalty (related to excess spectrum pricing): In
addition, we see downside risk to regulatory payments related to excess 2G spectrum
pricing for Bharti/Idea if the Telcos commission/TDSAT decides to use the price determined
in auction rather than TRAI determined prices. We believe any price determined in a
potential 2G auction may be lower than TRAI’s 2G excess spectrum pricing (Rs11/Rs5 for
Bharti/Idea), as the demand for 1800 MHz spectrum is relatively lower and the new entrants
are cash-constrained to be aggressive in the bidding process. We do not yet capture this
potential positive in our target prices
We raise our Bharti and Idea estimates (only in incumbent circles)
We raise our Bharti/Idea FY13E-FY14E revenue estimates by 2%-3% to factor in better-thanexpected
incremental revenue market share (by raising our subs/ARPU estimates), as we
expect competition to decline as we expect less intense competition from affected
operators. Given operating and financial leverage, this leads to a 5%/7% increase in our
FY13E/FY14E EPS for Bharti and 9%/9% increase in our FY13E/FY14E EPS for Idea. For
FY13E/FY14E EPS we are now 3%/10% ahead of consensus for Bharti and 4%/8% ahead of
consensus for Idea. Our SOTP-based 12-month target price increases by 11% to Rs475 for
Bharti and by 4% to Rs111 for Idea. For Idea, our core business value increases by 8%.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India: Telecom Services
Equity Research
Structural improvement warrants re-rating; add Bharti to CL-Buy
Add preferred pick Bharti to CL-Buy; also reiterate Buy on Idea
We add Bharti to our Conviction Buy List as we consider it to be the
operator best positioned to benefit from an improving regulatory
environment and declining competition. We also reiterate our Buy rating
on Idea, even after potential license cancellation notice for nine circles, as
we expect benefits from easing competitive environment in its incumbent
circles to more than offset an increase in re-bidding costs in its new circles.
Downside risks to competition and regulatory payments
We believe any potential license cancellation of new entrants would reduce
competition. Even if the new entrants rebid again to acquire spectrum,
their financial position would be weaker, in our view, thus giving
bargaining power to operators like Bharti/Vodafone to raise tariffs. In
addition, we see downside risks to regulatory payment related to excess
2G spectrum pricing for Bharti/Idea if the Telcos commission/TDSAT
decides to use the price determined in auction rather than TRAI-determined
prices. We believe any price determined in a potential 2G auction may be
lower than TRAI’s 2G excess spectrum pricing (Rs11/Rs5 for Bharti/Idea), as
the demand for 1800 MHz spectrum is relatively lower.
Target prices raised to factor in easing competition
We raise our Bharti/Idea FY13E-FY14E revenue estimates by 2%-3% to
factor in better than expected incremental revenue market share, as we
expect less intense competition from affected operators. Accordingly, our
FY13E/FY14E EPS increases by 5%/7% for Bharti and 9% /9% for Idea. Our
12-m SOTP-based TP thus increases by 11% to Rs475 for Bharti and 4% to
Rs111 for Idea. On FY13E/FY14E EPS, we are now 3%/10% ahead of
consensus for Bharti and 4%/8% ahead of consensus for Idea.
For Idea: Easing competition (Rs10) offsets rebid payment (Rs6)
As Idea’s new circles are EBITDA-negative, we believe Idea’s P&L without
these nine circles would have better EBITDA/EPS for FY13/FY14. Our pro
forma numbers imply 3%/17% increase in FY13E EBITDA/EPS if licenses
are cancelled. However, as we consider Idea to be a long-term committed
operator, we expect it to re-bid for spectrum in the upcoming 2G auction.
Our target price assumes Idea pays an amount equivalent to the winning
3G spectrum pricing (Rs6/share) to acquire spectrum in these circles.
Revisiting fundamentals: Adding Bharti to Conviction Buy List
We add Bharti to our Conviction Buy List as we consider it to be the operator best
positioned to benefit from the improving regulatory environment and declining
competition. Our revised 12-m SOTP-based target price of Rs475 (up 11%) implies 22%
potential upside from current levels. We also reiterate our Buy rating on Idea, despite risks
associated with 9 license cancellations, as even after penalizing the company with
incremental payment for re-acquiring spectrum, there is 18% potential upside to our new
12-month SOTP-based target price of Rs111.
License cancellation structurally positive for incumbents
Competition to decline, even after affected operators re-bid: We believe any potential
license cancellation of new entrants would reduce competition. Even if the new entrants
rebid again to acquire spectrum, their financial position would be weaker, in our opinion,
thus giving bargaining power to operators like Bharti/Vodafone to raise tariffs. We expect
incumbents like Bharti and Idea (in their strong circles) to continue to gain revenue market
share at the expense of new operators.
Downside risk to potential regulatory penalty (related to excess spectrum pricing): In
addition, we see downside risk to regulatory payments related to excess 2G spectrum
pricing for Bharti/Idea if the Telcos commission/TDSAT decides to use the price determined
in auction rather than TRAI determined prices. We believe any price determined in a
potential 2G auction may be lower than TRAI’s 2G excess spectrum pricing (Rs11/Rs5 for
Bharti/Idea), as the demand for 1800 MHz spectrum is relatively lower and the new entrants
are cash-constrained to be aggressive in the bidding process. We do not yet capture this
potential positive in our target prices
We raise our Bharti and Idea estimates (only in incumbent circles)
We raise our Bharti/Idea FY13E-FY14E revenue estimates by 2%-3% to factor in better-thanexpected
incremental revenue market share (by raising our subs/ARPU estimates), as we
expect competition to decline as we expect less intense competition from affected
operators. Given operating and financial leverage, this leads to a 5%/7% increase in our
FY13E/FY14E EPS for Bharti and 9%/9% increase in our FY13E/FY14E EPS for Idea. For
FY13E/FY14E EPS we are now 3%/10% ahead of consensus for Bharti and 4%/8% ahead of
consensus for Idea. Our SOTP-based 12-month target price increases by 11% to Rs475 for
Bharti and by 4% to Rs111 for Idea. For Idea, our core business value increases by 8%.
No comments:
Post a Comment