Upload
others
View
0
Download
0
Embed Size (px)
Citation preview
Shobhit Khare ([email protected]) +91 22 3982 5428
Indian telecom monthly
SIM: Special In the Month .............................................................. 2
n INDIA TELECOM: 1QFY13 preview
n Bharti Airtel: Continued competitive pressure, aggravated by regulatory
uncertainty; Cutting estimates, target price
Numbers: Statistical Review (May) ............................................... 4
Buzz: Monthly Updates.................................................................. 10
n INDIA TELECOM: Split TDSAT verdict on 3G roaming; regulatory certainty
remains elusive
Messages: Key Sector Developments (May) ..................................12
Signals: Sector Outlook & Valuation.............................................. 14
Main Menu Gallery
July 2012
TALK TIME
TELE
3T
Industry wireless net additions (m)
Stock price performance v/s Sensex
May-12 subscriber market share (inner)
4QFY12 AGR market share (outer)
Absolute performance (%)
Speed Dial: Monthly Summary
n In 1QFY13, we expect the average wireless traffic for the top-4
operators to grow ~4% QoQ. Wireless RPM decline is likely to
continue due to relatively higher competitive activity amidst
regulatory uncertainty. Operators have not been able to fully pass
on the negative impact of hike in service tax and change in
regulations for tariff vouchers. We expect Idea to continue reporting
the highest traffic growth at 6% QoQ, followed by Bharti (3.5% QoQ).
n We expect consolidated EBITDA margin for Bharti to remain largely
flat QoQ at 33.2%; margin for India and South Asia business is also
likely to be stable. Idea is likely to report consolidated EBITDA margin
of ~28%; flat QoQ on an adjusted basis. For RCom, we model
consolidated EBITDA margin of 32% in 1QFY13.
n The regulatory environment continues to be uncertain. While EGoM
decided to offer higher quantum of spectrum (10MHz+) in the
upcoming auction mandated by the Supreme Court, the crucial
decision on reserve price has been delayed. Potential industry
consolidation/exit of new entrants could lead to improvement in
the operating environment for the Indian wireless sector, given the
discounted pricing being offered by challengers to buy market share.
n Valuation and view: Over FY12-14, we expect 14/25% EBITDA CAGR
for Bharti/Idea, led by 10/17% traffic CAGR in the India wireless
business. Reiterate Buy on Bharti (trades at an EV of 7x FY13E and
5.7x FY14E EBITDA) and Idea (trades at an EV of 6x FY13E and 4.6x
FY14E EBITDA). Maintain Neutral on RCom.
Comparative valuations
CMP Rating TP Upside Mcap EV P/E (x) EV/EBITDA (x) EV/Sales (x)
(INR) (INR) (%) (USD b) (USD b) FY13E FY14E FY13E FY14E FY13E FY14E
Bharti* 317 Buy 370 16.9 21.5 33.1 22.6 15.7 7.0 5.7 2.5 2.1
I d e a 85 Buy 100 17.6 5.0 7.3 18.6 11.0 6.0 4.6 1.7 1.4
RCom 67 Neutral 65 -2.1 2.5 8.9 11.7 5.9 6.4 5.2 2.1 1.8
*Proportionate EV/EBITDA and EV/sales
20
17
171 1
13
9
7
21
8
14
9
5
8 31
8
4 Bha rti Airte l
RCo m
Vod afone
BSNL+MTNL
Idea
Ta ta Tele
Airc el
New entrants
5 613 8
-13
1 2- 3
0
- 19
5 58 3
-17
-12
-30
511
- 7
1W 1M 3M 6M 12M
B ha rti Id ea R COM Se ns ex
1
30
65
100
135
170
Jul-
11
Jul-
11
Aug
-11
Sep
-11
Oct
-11
No
v-1
1
Dec-1
1
Jan
-12
Feb
-12
Ma
r-1
2
Apr-
12
Ma
y-1
2
Jun
-12
Bh arti reb ase d RCom rebas edSens ex reba sed Idea reba sed
Investors are advised to refer through disclosures made at the end of the Research Report.
97 8
2
810
Dec
-11
Jan-
12
Feb-
12
Ma
r-12
Ap
r-12
May
-12
2July 2012
TELE3T
TALK TIME
Special In The MonthSIM
Please refer to our detailed
report dated July 2012
India Strategy: June 2012 Results PreviewTelecom - 1QFY13 preview
Wireless traffic to grow ~4% QoQ; RPM pressure to continue: In 1QFY13, we expect
the average wireless traffic for the top-4 operators to grow ~4% QoQ. Wireless RPM
decline is likely to continue due to relatively higher competitive activity amidst
regulatory uncertainty. Operators have not been able to fully pass on the negative
impact of hike in service tax and change in regulations for tariff vouchers. Within
operators, we expect Idea to continue reporting the highest traffic growth at 6%
QoQ, followed by Bharti (3.5% QoQ).
Expect stable EBITDA margin for Bharti/Idea: We expect consolidated EBITDA margin
for Bharti to remain largely flat QoQ at 33.2%; margin for India and South Asia business
is also likely to be stable, led by QoQ flat revenue/cost trends. Idea is likely to report
consolidated EBITDA margin of ~28%; flat QoQ on an adjusted basis. For RCom, we
model consolidated EBITDA margin of 32% in 1QFY13.
Forex loss for Bharti/Idea to drag PAT: We model forex loss of INR2.3b/INR0.45b for
Bharti/Idea, given the sharp depreciation of INR as well as African currencies against
the USD. While we expect QoQ PAT growth of 7/13% for Bharti consolidated/ex-Africa,
QoQ PAT growth for Idea is likely to be dragged down by forex impact. For RCom, our
QoQ PAT decline expectation is largely based on positive tax provision as compared
to write-back in the previous quarter.
Africa business to be impacted by adverse forex movement: Bharti’s Africa business
is likely to be impacted by ~4% adverse weighted currency depreciation as compared
to USD. We expect flat QoQ revenue/EBITDA in USD terms and model US40m derivative
and exchange fluctuation loss in 1QFY13 due to adverse currency movement.
Industry subscriber additions stable at ~7m on proforma basis: While industry
subscriber net additions declined to ~2m in April 2012 on a reported basis, this was
largely on account of write-off in the subscriber base of S Tel/Etisalat (which have
exited the Indian market). We estimate proforma net adds for April at ~7m, down
~50% YoY due to lower competitive activity and higher penetration levels.
Regulatory uncertainty remains an overhang: The regulatory environment continues
to be uncertain. While EGoM decided to offer higher quantum of spectrum (10MHz+)
in the upcoming auction mandated by the Supreme Court, the crucial decision on
reserve price has been delayed. Potential industry consolidation/exit of new entrants
could lead to improvement in the operating environment for the Indian wireless
sector, given the discounted pricing being offered by challengers to buy market share.
Valuation and view: Over FY12-14, we expect 14/25% EBITDA CAGR for Bharti/Idea, led
by 10/17% traffic CAGR in the India wireless business. Reiterate Buy on Bharti (trades
at an EV of 7x FY13E and 5.7x FY14E EBITDA) and Idea (trades at an EV of 6x FY13E and
4.6x FY14E EBITDA). Maintain Neutral on RCom.
3July 2012
TELE3T
TALK TIME
Special In The MonthSIM
Please refer to our detailed
report dated 2 July 2012
Bharti Airtel: Competitive pressure aggravated byregulatory uncertaintyCutting estimates, target price
We are downgrading FY13/14 EBITDA estimates for Bharti by 4-6% and EPS by 23%
largely on lower India mobile RPM/margins given adverse pricing environment.
Our recent industry interactions suggest pricing pressures continue in 1QFY13;
industry has not been able to fully pass on the impact of: 1) increase in service tax,
and 2) regulatory restrictions on sales of certain bundled top-up vouchers.
We are incorporating INR2.3b forex loss in 1QFY13 for Bharti primarily due to
estimated 4-5% loan-weighted depreciation in African currencies during the
quarter. We are also tweaking our Africa business estimates to incorporate
currency swings as well as lower subscriber adds/margins. We now expect FY13/
14 EBITDA of USD1.3/1.6b implying an EBITDA CAGR of 21%.
Lack of regulatory clarity on 2G spectrum auction remains an overhang given 1)
potential spectrum liability, and 2) pricing pressure from challengers with unviable
business models.
Maintain Buy with a revised target price of INR370 (INR 400 earlier) based on 7.5x
FY14 EV/EBITDA for India & SA business, 5x EV/EBITDA for Africa business and
INR142b impact for potential regulatory outlay.
Consolidated
FY13E FY14E
Revenue (INR b)
Old 809 882
New/Actual 805 879
Change (%) -0.5 -0.3
EBITDA (INR b)
Old 283 329
New/Actual 272 311
Change (%) -4.0 -5.6
Net Profit (INR b)
Old 69 100
New/Actual 53 76
Change (%) -23.2 -23.2
EPS (INR)
Old 18.3 26.2
New/Actual 14.0 20.2
Change (%) -23.2 -23.2
India & South Asia
FY13E FY14E
Revenue (INR b)
Old 571 623
New/Actual 561 613
Change (%) -1.7 -1.6
EBITDA (INR b)
Old 211 241
New/Actual 201 227
Change (%) -5.1 -6.0
Mobile traffic (b min)
Old 994 1,068
New/Actual 998 1,073
Change (%) 0.4 0.5
RPM (p)
Old 43.9 45.1
New/Actual 42.6 43.8
Change (%) -2.9 -2.9
Africa
FY13E FY14E
Revenue (USD b)
Old 4.8 5.4
New/Actual 4.5 5.1
Change (%) -4.9 -5.2
EBITDA (USD b)
Old 1.4 1.8
New/Actual 1.3 1.6
Change (%) -8.0 -11.7
Subscribers (m)
Old 66 84
New/Actual 65 79
Change (%) -1.4 -5.4
ARPU (USD)
Old 6.7 6.0
New/Actual 6.4 5.9
Change (%) -4.4 -1.6
Bharti: Summary of estimate change
4July 2012
TELE3T
TALK TIME
Pan India trend of wireless subscriber base and net adds (m)
Monthly industry
net adds bounced back to
8m in May-12
Wireless net adds (m) trend of leading operators (m)
Source:TRAI
Bharti continued to lead
the net adds for third
consecutive month
Monthly trend analysisMay 2012
Statistical ReviewNUMBERS
545
564
584
652
671
688
707
730
752
771
791
812
827
840
851
858
866
874
881
894
929
601
618
636
884
904
911
919 92
1
8
20 1921
17 1618 17
18 1719
23 23
19 20 20
1513
11
7 7 8 83 9 10
78
2
Jan
-10
Feb
-10
Ma
r-10
Ap
r-10
Ma
y-10
Jun
-10
Jul-
10
Aug
-10
Sep
-10
Oct
-10
No
v-10
Dec
-10
Jan
-11
Feb
-11
Ma
r-11
Ap
r-11
Ma
y-11
Jun
-11
Jul-
11
Aug
-11
Sep
-11
Oct
-11
No
v-11
Dec
-11
Jan
-12
Feb
-12
Ma
r-12
Ap
r-12
Ma
y-12
Pan In dia - Wireles s Sub scriber B ase (m) Pan India - Wire less Net Adds (m)
-5
-3
-1
1
3
5
Jan
-11
Feb
-11
Ma
r-11
Ap
r-11
Ma
y-11
Jun
-11
Jul-
11
Aug
-11
Sep
-11
Oct
-11
No
v-11
Dec
-11
Jan
-12
Feb
-12
Ma
r-12
Ap
r-12
Ma
y-12
Bh arti Idea RCom Vodafo ne
Tata Tele BSNL+MTNL Aircel
Operator-wise wireless net adds (m)
Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 MoM (%)
B harti 1.0 1.3 1.8 2.5 2.0 2.0 (0)
Vodafon e 0.9 0.9 0.8 1.0 0.8 1.2 47
B SNL 0.4 0.9 0.1 0.0 0.0 0.0 NA
IDEA (incl . Spice) 2.4 1.7 2.6 2.0 1.5 1.8 18
Aircel 0.7 0.8 0.8 (0.7) 1.0 (1.9) (287)
MTNL 0.0 0.1 0.0 0.1 (0.1) (0.2) 55
R el iance Comm 0.9 0.9 1.0 1.0 0.5 0.5 1
Tata Tele 0.1 0.2 (1.8) (0.1) (0.5) 0.3 (160)
Sistema 0.5 0.1 0.2 0.4 0.2 0.3 24
HFCL 0.0 0.1 0.1 (0.0) 0.1 (1.4) (1,571)
Loo p Mo bi le 0.0 0.0 0.0 0.0 (0.0) 0.0 (194)
Un inor 2.1 2.5 2.3 1.3 1.1 1.5 36
S Tel (0.0) (0.1) 0.0 0.0 0.0 0.0 NA
Etisala t DB 0.1 0.0 (0.9) 0.0 0.0 0.0 NA
Videocon (0.0) 0.4 0.3 (0.2) 0.2 0.1 (19)
Total 9.2 9.9 7.4 7.3 6.8 4.2 (38)
5July 2012
TELE3T
TALK TIME
Aggregate adjusted gross revenue (AGR) of telecom operators (INR b)
Aggregate industry AGR
in 4QFY12 declined ~2%
QoQ largely due to year-
end adjustments
Adjusted gross revenue (INR b)4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q YoY QoQ
FY10 FY10 FY10 FY11 FY11 FY11 FY11 FY12 FY12 % %
Bharti (incl. wireline) 67.8 71.5 68.7 70.7 70.2 75.6 74.0 77.7 77.0 10 -1
Vodafone 42.7 44.1 43.8 45.9 47.7 50.5 50.5 54.6 55.6 17 2
Idea/Spice 26.3 27.9 27.4 29.7 31.2 33.5 33.6 36.5 38.8 24 6
BSNL/MTNL 19.7 18.6 18.6 19.2 19.9 19.8 19.9 18.7 17.3 -13 -8
RCOM (incl. wireline) 18.8 21.3 21.3 19.5 18.4 18.6 19.5 21.7 16.7 -9 -23
Tata Tele (incl. wireline) 18.5 18.1 18.7 20.0 21.1 22.0 21.7 22.9 23.5 11 3
Aircel 9.6 10.5 11.0 10.8 10.9 11.6 11.7 11.7 11.3 4 -4
Others 2.4 2.6 3.6 5.1 6.0 7.9 10.2 10.7 10.0 65 -7
All India 205.9 214.7 213.2 220.8 225.4 239.4 241.1 254.6 250.1 11 -2
QoQ (%) 6 4 -1 4 2 6 1 6 -2
AGR share (%)4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q YoY QoQ
FY10 FY10 FY10 FY11 FY11 FY11 FY11 FY12 FY12 (BP) (BP)
Bharti (incl. wireline) 32.9 33.3 32.2 32.0 31.1 31.6 30.7 30.5 30.8 -36 27
Vodafone 20.7 20.5 20.6 20.8 21.2 21.1 20.9 21.4 22.2 107 79
Idea/Spice 12.8 13.0 12.9 13.4 13.9 14.0 14.0 14.3 15.5 167 118
BSNL/MTNL 9.6 8.6 8.7 8.7 8.8 8.3 8.3 7.4 6.9 -191 -44
RCOM (incl. wireline) 9.1 9.9 10.0 8.8 8.2 7.8 8.1 8.5 6.7 -148 -186
Tata Tele (incl. wireline) 9.0 8.4 8.8 9.1 9.4 9.2 9.0 9.0 9.4 1 40
Aircel 4.7 4.9 5.1 4.9 4.8 4.8 4.9 4.6 4.5 -32 -10
Others 1.2 1.2 1.7 2.3 2.7 3.3 4.2 4.2 4.0 131 -23
All India 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Source: TRAI
Source: TRAI
Wireless net adds (m) trend of new entrants
We expect pressure on
new entrants to continue
given regulatory
uncertainty
-1
0
1
2
3
4
Jan
-11
Feb
-11
Ma
r-11
Ap
r-11
Ma
y-11
Jun
-11
Jul-
11
Aug
-11
Sep
-11
Oct
-11
No
v-11
Dec
-11
Jan
-12
Feb
-12
Ma
r-12
Ap
r-12
Ma
y-12
Uninor Sis tema Shyam
5.84.3
-0.73.6
2.1
6.3
0.7
5.6
-1.7
206 215 213 221 225239 241 255 250
4QF
Y10
1QF
Y11
2QF
Y11
3QF
Y11
4QF
Y11
1QF
Y12
2QF
Y12
3QF
Y12
4QF
Y12
QoQ AGR growth (%) Ad jus ted Gros s Revenu e (INR b)
6July 2012
TELE3T
TALK TIME
May 12: Wireless subscriber market share May 12: Wireless net adds market share
May 12: Circle wise subscriber mix May 12: Circle wise net adds mix
Bharti remains the market leader with ~20%
wireless subscriber market share followed by
RCOM/ Vodafone (16-17%); new entrants
together constitute only ~8% of the market
Bharti reported the highest net adds
market share followed by Idea
Metro and 'A' Circle categories together
constitute 46% of the industry subscriber base Metros reported negative net adds in May 2012
B harti , 20%
Rel ian ce
Comm, 17%
Vodafo ne,
17%
Idea, 13%
Tata Te le,
9%
Aircel , 7%
(n ew
entran ts),
8%
BSNL/MTNL,
11%
BSNL+MTNL
, -4%
Oth ers
(n ew
entran ts),
12%IDEA,
42%
Airce l ,
-45%Tata Te le
7%
Vodafo ne,
29%
Rel ia nce
Co mm
12%
Bharti
48%
Me tro
12%
'A' Ci rcle
34%' B' Ci rcle
39%
'C' Ci rcle
14%Me tro
-46%
'A' Ci rcle
51%
'B' Ci rcle
64%
'C' Ci rcle
30%
7July 2012
TELE3T
TALK TIME
4QFY12: Gross revenue (GR) market share 4QFY12: Adjusted gross revenue (AGR) market share
Bharti continues to be the market leader with ~30% gross revenue
market share followed by Vodafone (~22%); new entrants
together constitute only ~4% of gross revenue market share
Quarterly trends
4QFY12: Circle wise GR mix 4QFY12: Circle wise AGR mix
Metro and 'A' Circle categories together constitute
~55% of the gross revenues
Bharti , 30%
Vodafo ne,
23%
Idea , 15%
Tala Tele , 9%
RCom, 7%
B SNL+MTNL,
7%
Aircel , 5% Oth ers, 4%
Bha rti , 31%
Vod afone
22%
Idea
16%
Tata Te le
9%
BSNL+MTNL
7%
RCo m
7%
Aircel
5%
Othe rs
4%
Metro
18%
'A' Ci rcle
37%
'B' Ci rcle
34%
'C' Ci rcle
11%
Me tro
16%
'A' Ci rcle
39%
'B' Ci rcle
34%
' C' Ci rcle
12%
8July 2012
TELE3T
TALK TIME
Revenue per minute (INR/Min) *
Average revenue per user (INR/month)
Wireless traffic (Billion Mins) *
Source: Company/MOSL
RPM for GSM majors
declined ~2 QoQ
Bharti (India) and
Idea mobile ARPU grew
~1% QoQ
Bharti/Vodafone/Idea
reported strong QoQ
traffic growth in 4QFY12
at 5/7/9%
* Vodafone RPM and traffic adjusted for on-net traffic to make it comparable with reporting of
other operators. Vodafone counts on-net minutes once while other operators report it as 2
minutes.
0.420.44
0.40
0.48
0.56
0.64
0.72
3Q
FY
09
4Q
FY
09
1Q
FY
10
2Q
FY
10
3Q
FY
10
4Q
FY
10
1Q
FY
11
2Q
FY
11
3Q
FY
11
4Q
FY
11
1Q
FY
12
2Q
FY
12
3Q
FY
12
4Q
FY
12
Bharti (India ) Ide a Vodafone RCom
189
160
179
9990
165
240
315
390
3Q
FY
09
4Q
FY
09
1Q
FY
10
2Q
FY
10
3Q
FY
10
4Q
FY
10
1Q
FY
11
2Q
FY
11
3Q
FY
11
4Q
FY
11
1Q
FY
12
2Q
FY
12
3Q
FY
12
4Q
FY
12
Bha rti (India) Ide a Vodafone RCom
25
75
125
175
225
3QFY
09
4QFY
09
1QFY
10
2QFY
10
3QFY
10
4QFY
10
1QFY
11
2QFY
11
3QFY
11
4QFY
11
1QFY
12
2QFY
12
3QFY
12
4QFY
12Idea RCom Vodafone Bharti (India)
9July 2012
TELE3T
TALK TIME
Rural and urban subscriber mix
GSM and CDMA subscriber mix
Source: TRAI
Rural subscriber mix at
inched-up to 35%
GSM subscribers now
constitute 88% of total
wireless base
29% 27% 28% 29% 30% 31% 33% 33% 33% 33% 34% 34% 34% 34% 35%
71% 73% 72% 71% 70% 69% 67% 67% 67% 67% 66% 66% 66% 66% 65%
2Q
FY09
3Q
FY09
4Q
FY09
1Q
FY10
2Q
FY10
3Q
FY10
4Q
FY10
1Q
FY11
2Q
FY11
3Q
FY11
4Q
FY11
1Q
FY12
2Q
FY12
3Q
FY12
4Q
FY12
Rural subscribers (% of to tal) Urban subscribers (% of to tal)
26% 26% 24% 23% 21% 20% 18% 17% 16% 15% 14% 13% 13% 12%
74% 74% 76% 77% 79% 80% 82% 83% 84% 85% 86% 87% 87% 88%
2QF
Y09
3QF
Y09
4QF
Y09
1QF
Y10
2QF
Y10
3QF
Y10
4QF
Y10
1QF
Y11
2QF
Y11
3QF
Y11
4QF
Y11
1QF
Y12
2QF
Y12
3QF
Y12
CDMA subscribers (% of total) GSM subscribers (% of total)
10July 2012
TELE3T
TALK TIME
INDIA TELECOM: Split TDSAT judgment on 3G roamingRegulatory certainty remains elusive
n TDSAT delivered a split judgment on the 3G intra-circle roaming (ICR) case with one
member (Chairman) setting aside DoT's (Department of Telecom) December 2011 order
banning 3G ICR based on the fact that DoT did not give any "show cause notice" to
operators to explain their position.
n The other member gave a judgment against operators ruling they cannot provide 3G
services in circles where operators have not been allocated 3G spectrum
n Bharti, Vodafone, and Idea have an intra-circle 3G roaming arrangement that enables
them to offer 3G services to their subscribers in the service areas where they do not
have 3G spectrum. DoT's 23rd December 2011 letter instructed the operators to stop
services based on ICR immediately.
n Currently the financial impact of 3G roaming arrangements is insignificant; operators
would likely be allowed to continue with services till further notice
n Regulatory uncertainty continues to persist with no resolution on the key decision on 2G
reserve price and auction details
n We have Buy rating on Bharti (trades at 7x FY13 EV/EBITDA) and Idea (trades at 6x FY13
EV/EBITDA).
Monthly UpdatesBUZZ
Key takeaways from Judgment made by Chairman (Justice S B Sinha)
n DoT's impugned orders dated 23.12.2011 are set aside; DoT can pass appropriate
orders upon giving due opportunity of hearing to the operators who have entered
the ICR.
n While the government contends that ICR agreements violate licence conditions,
the DoT did not have the copies of these agreements at the time of passing of the
impugned order.
n Since DoT is of the opinion that roaming facilities do not amount to sharing of
spectrum, it should give the operators an opportunity of hearing.
n DoT may pass appropriate orders after considering the responses to its show cause
notices.
Key takeaways from Judgment made by the other member (Mr P K Rastogi)
n Operators who have not been allocated 3G spectrum in a circle by the government
cannot provide 3G services in those circles by way of making ICR with operators
having 3G spectrum.
n Show cause notice from DoT was not necessary. The principle of natural justice is
not violated by the impugned communication dated 23.12.2011
n The impugned letter simply instructed the operators to stop the illegal services
which were not authorized by the licensor.
n The letter seems to be more in the nature of advice without any penal
consequences.
11July 2012
TELE3T
TALK TIME
Text of DoT's 'impugned' letter issued to operators on 23.12.2011
n It has been brought to the notice of the licensor that you are providing services in
certain service areas to your customers which are otherwise presently available
by virtue of 3G spectrum in 2.1 GHz band only and which cannot be provided with
the spectrum allocated (in the form of carrier of 200 KHz each) to you in the 900/
1800 MHz bands under the provisions of CMTS/UAS licenses granted to you through
the above mentioned intra service area roaming arrangements. This has been
further corroborated by your communications in which you have informed DoT
about the above mentioned Intra Service Area roaming arrangements for the
purposes of meeting the security requirements and various other your
communications in the matter.
n On examination of your various communications in the matter vis-à-vis the terms
and conditions of CMTS/UAS licence, terms and conditions of the NIA for auction
of 3G and BWA spectrum along with queries & responses issued in this regard and
the amendment of license for right to use of 3G spectrum issued to the successful
bidders. It has been concluded that provision of the services by you which are
presently available by virtue of 3G spectrum in 2.1 GHz band only, to your customers
through the above mentioned intra service area roaming arrangements is not
permissible.
n You are, therefore, instructed to stop provision of such services immediately in
all such service areas where you are providing services under above mentioned
Intra Service Area roaming arrangement. A confirmation of having stopped the
services may be provided to this office latest by 15.00 hrs. of 24.12.11 with copy on
email ID diras4-dot.a.nic.in and to the concerned TERM cell along with the names
of the LSAs where the services were being provided. Name(s) of the licensees for
each service area with whom such arrangements were made may also be indicated.
n These instructions are issued without prejudice to any other remedy available to
the licensor and also to any other actions for the breach of any of the conditions of
the CMTS/UAS license agreements signed with the company.
12July 2012
TELE3T
TALK TIME
P Chidambaram appointed head of EGoM on spectrum auction, BJP attacks
decision
Home Minister P Chidambaram has been appointed the head of the Empowered Group
of Ministers (EGoM) on spectrum auction that was reconstituted after Agriculture
Minister Sharad Pawar declined the job fearing controversies. In a decision that was
attacked by the BJP, Chidambaram, a former Finance Minister, will head the seven-
member group that also includes Defence Minister A K Antony, Telecom Minister
Kapil Sibal, I&B Minister Ambika Soni, Law Minister Salman Khurshid, Minister of
State in Prime Minister's Office V Narayanasamy and Planning Commission Deputy
Chairman Montek Singh Ahluwalia. The ministerial panel is to decide on the minimum
or the base price for auction of telecom spectrum vacated from cancellation of 122
licenses by the Supreme Court earlier this year.
Govt may not meet Aug 31 spectrum auction deadline
An inter-ministerial panel set up to supervise auction of spectrum for telecom services
is learnt to have said it is not possible to meet the Supreme Court (SC) deadline of
August 31 to complete the process. According to government sources, the Inter-
Ministerial Committee (IMC) has conveyed that it is difficult to complete the auction
exercise by August 31 due to delay in final decision from Empowered Group of
Ministers (EGoM).
Telecom equipment industry revenues fall marginally in FY'12
Telecom equipment industry posted marginally lower revenues of Rs 1,13,188 crore
in 2011-12 on account of policy uncertainty that slowed investments in network
expansion, according to a Voice&Data survey. In 2010-11, the industry had logged in Rs
1,14,133 crore in revenue. "Nearly half of the Telecom equipment revenue came from
carrier equipment manufacturers, which saw a dip of 5.06 per cent to touch Rs 55,333
crore during the year," CyberMedia group's journal Voice&Data said. The segment
had registered Rs 58,285 crore revenue in financial year 2010-11, it added.
Scrap DoT proposal to charge all spectrum at new rates: Mulayam Singh
Yadav
Samajwadi Party supremo Mulayam Singh Yadav has shot off a letter to Finance
Minister saying existing telecom firms should not be made to pay the same spectrum
fee as to be discovered during the proposed auctions. The Department of
Telecommunications has proposed to use the auction-determined price as the
benchmark for allocating spectrum to existing operators when their licences come up
for renewal in near future. "I am very concerned by this new proposal mooted by DoT
without bothering about the serious and far-reaching consequences," Yadav, whose
party provides outside support to the UPA government, wrote to the then Finance
Minister Pranab Mukherjee on June 10.
Key sector developmentsMESSAGES
13July 2012
TELE3T
TALK TIME
Airtel to invest $25 million on networks in Malawi
Country's largest telecom operator Bharti Airtel today said it will invest US$25 million
for development of 3G network and introduction of Airtel Money services in African
country Malawi. "Our investment of US$25 million in the development of the 3G
network and introduction of Airtel Money are a clear demonstration of our
commitment to deepen our network and bridge the digital divide," Bharti Airtel CEO
(International) and Joint MD Manoj Kohli said in a statement after meeting Malawian
President Joyce Banda.
DoT to roll out uniform revenue share across platforms from July 1
The telecom department (DoT) plans to roll out the process of charging uniform licence
fee or revenue share across all communication services from July 1, after it had
deferred its plans to move to this new structure from the beginning of the current
financial year, an official aware of the development said. The new regime will be
introduced in a phased manner over a two-year period. The DoT has also accepted the
finance ministry's demand that a minimum amount be specified to be quantum of
revenue share. This implies, if 8% of the company's annual revenues were to be
below this figure, the operator must pay the minimum quantum specified.
India's plan to refarm spectrum hinges on army vacating about 55 MHz in
the 1800-MHz band
India's plans to refarm spectrum, or redistribute airwaves that are held by incumbent
mobile phone companies through auctions, will depend on its armed forces freeing
up additional frequencies for commercial telephony. An analysis by the telecom
department has revealed that refarming cannot be executed in full in as many as 12 of
the 22 regions or more than half the country, unless the armed forces vacate about 55
MHz of spectrum in the 1800 MHz band.
14July 2012
TELE3T
TALK TIME
Sector outlook & valuationSIGNALS
Comparative valuations
CMP Rating TP Upside Mcap EV P/E (x) EV/EBITDA (x) EV/Sales (x)
(INR) (INR) (%) (USD b) (USD b) FY13E FY14E FY13E FY14E FY13E FY14E
Bharti * 317 Buy 370 16.9 21.5 33.1 22.6 15.7 7.0 5.7 2.5 2.1
I d e a 85 Buy 100 17.6 5.0 7.3 18.6 11.0 6.0 4.6 1.7 1.4
RCom 67 Neutral 65 -2.1 2.5 8.9 11.7 5.9 6.4 5.2 2.1 1.8
* Proportionate EV/EBITDA and EV/sales
RoIC (%) RoE (%) EBITDA Margin (%) Net Debt/EBITDA (x) Net Debt/Equity (x)
FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E
Bharti 6.1 7.0 9.4 8.1 9.6 12.5 33.2 33.7 35.3 2.7 2.4 1.7 1.2 1.2 0.8
I d e a 5.8 8.5 11.8 5.7 10.9 16.0 26.1 28.8 30.4 2.6 2.1 2.0 1.0 0.8 0.5
RCom 4.1 4.7 6.3 2.9 3.5 6.7 31.7 32.8 34.9 5.6 5.2 4.9 1.1 1.0 0.8
Capex/Sales (%) Sales Gr. (%) EBITDA Gr. (%) EPS (INR) EPS Gr. (%)
FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E
Bharti 19.6 19.2 15.2 20.2 12.7 9.2 18.8 14.6 14.3 11.2 14.0 20.2 -29.6 24.9 43.7
I d e a 19.8 14.8 10.0 26.0 18.3 13.4 34.3 30.6 19.9 2.2 4.6 7.7 -19.6 108.6 68.1
RCom 7.4 8.4 10.5 -1.1 9.7 8.3 -1.5 13.6 15.1 4.8 5.7 11.3 -33.8 18.8 99.0
n In 1QFY13, we expect the average wireless traffic for the top-4 operators to grow
~4% QoQ. Wireless RPM decline is likely to continue due to relatively higher
competitive activity amidst regulatory uncertainty. Operators have not been able
to fully pass on the negative impact of hike in service tax and change in regulations
for tariff vouchers. Within operators, we expect Idea to continue reporting the
highest traffic growth at 6% QoQ, followed by Bharti (3.5% QoQ).
n We expect consolidated EBITDA margin for Bharti to remain largely flat QoQ at
33.2%; margin for India and South Asia business is also likely to be stable, led by
QoQ flat revenue/cost trends. Idea is likely to report consolidated EBITDA margin
of ~28%; flat QoQ on an adjusted basis. For RCom, we model consolidated EBITDA
margin of 32% in 1QFY13.
n The regulatory environment continues to be uncertain. While EGoM decided to
offer higher quantum of spectrum (10MHz+) in the upcoming auction mandated
by the Supreme Court, the crucial decision on reserve price has been delayed.
Potential industry consolidation/exit of new entrants could lead to improvement
in the operating environment for the Indian wireless sector, given the discounted
pricing being offered by challengers to buy market share.
n Valuation and view: Over FY12-14, we expect 14/25% EBITDA CAGR for Bharti/
Idea, led by 10/17% traffic CAGR in the India wireless business. Reiterate Buy on
Bharti (trades at an EV of 7x FY13E and 5.7x FY14E EBITDA) and Idea (trades at an EV
of 6x FY13E and 4.6x FY14E EBITDA). Maintain Neutral on RCom.
15July 2012
TELE3T
TALK TIME
Global valuations
Market Revenue gr. (%) EBITDA gr. (%) EV/EBITDA (x)
Cap (USDB) CY12 CY13E CY12 CY13E CY12 CY13E
China Mobile 220 7 6 3 3 4.2 4.1
AT&T 208 2 1 3 4 6.4 6.1
Vodafone Group 139 -1 -4 -3 -5 8.1 8.4
Te lef onica 56 -7 0 -5 0 5.2 5.1
America Movil 98 19 6 4 5 6.1 5.8
Verizon 126 4 3 8 6 5.9 5.6
NTT DOCOMO 73 0 5 2 5 3.4 3.3
France Telecom 33 -11 -2 -14 -3 4.3 4.4
China Unicom 31 18 15 11 17 3.9 3.3
MTN Group 33 2 6 0 6 4.5 4.2
Zain 11 -1 1 -2 -1 5.4 5.4
Partner Comm 1 -17 -8 -27 -8 4.2 4.6
Average 1 3 -2 2 5.1 5.0
Source: Bloomberg
One-year forward EV/EBITDA
10.0
4
8
12
16
20
Mar
-05
Au
g-0
5
De
c-05
Apr
-06
Sep
-06
Jan
-07
Ma
y-0
7
Sep
-07
Feb
-08
Jun
-08
Oct
-08
Feb
-09
Jul-
09
No
v-0
9
Mar
-10
Au
g-1
0
De
c-10
Apr
-11
Au
g-1
1
Jan
-12
Ma
y-1
2
Bh arti Id ea RCom Ave rageBh arti Id ea RCom Ave rage
16July 2012
TELE3T
TALK TIME
N O T E S
Motilal Oswal
Product Gallery
Motilal OswalSector
Periodicals
weekly
power utilities monthly
DisclosuresThis report is for personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. This research report does not constitute an offer, invitation or inducement
to invest in securities or other investments and Motilal Oswal Securities Limited (hereinafter referred as MOSt) is not soliciting any action based upon it. This report is not for public distribution and has been
furnished to you solely for your information and should not be reproduced or redistributed to any other person in any form.
Unauthorized disclosure, use, dissemination or copying (either whole or partial) of this information, is prohibited. The person accessing this information specifically agrees to exempt MOSt or any of its affiliates
or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSt or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOSt
or any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays.
The information contained herein is based on publicly available data or other sources believed to be reliable. While we would endeavour to update the information herein on reasonable basis, MOSt and/or its
affiliates are under no obligation to update the information. Also there may be regulatory, compliance, or other reasons that may prevent MOSt and/or its affiliates from doing so. MOSt or any of its af filiates or
employees shall not be in any way responsible and liable for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report . MOSt or any of its affiliates
or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness
for a particular purpose, and non-infringement. The recipients of this report should rely on their own investigations.
This report is intended for distribution to institutional investors. Recipients who are not institutional investors should seek advice of their independent financial advisor prior to taking any investment decision
based on this report or for any necessary explanation of its contents.
MOSt and/or its affiliates and/or employees may have interests/positions, financial or otherwise in the securities mentioned in this report. To enhance transparency, MOSt has incorporated a Disclosure of Interest
Statement in this document. This should, however, not be treated as endorsement of the views expressed in the report.
Disclosure of Interest Statement Companies where there is interest
1. Analyst ownership of the stock None
2. Group/Directors ownership of the stock Bharti Airtel
3. Broking relationship with company covered None
4. Investment Banking relationship with company covered None
Analyst CertificationThe views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or
will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. The research analysts, strategists, or research associates principally responsible
for preparation of MOSt research receive compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.
Regional Disclosures (outside India)This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to
law, regulation or which would subject MOSt & its group companies to registration or licensing requirements within such jurisdictions.
For U.K.This report is intended for distribution only to persons having professional experience in matters relating to investments as described in Article 19 of the Financial Services and Markets Act 2000 (Financial
Promotion) Order 2005 (referred to as "investment professionals"). This document must not be acted on or relied on by persons who are not investment professionals. Any investment or investment activity to
which this document relates is only available to investment professionals and will be engaged in only with such persons.
For U.S.MOSt is not a registered broker-dealer in the United States (U.S.) and, therefore, is not subject to U.S. rules. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange
Act of 1934, as amended (the "Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S.,
Motilal Oswal has entered into a chaperoning agreement with a U.S. registered broker-dealer, Marco Polo Securities Inc. ("Marco Polo"). Any business interaction pursuant to this report will have to be executed
within the provisions of this Chaperoning agreement
This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional
investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major
institutional investors and will be engaged in only with major institutional investors.
The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, Marco
Polo and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.
Motilal Oswal Securities LtdMotilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
Phone: +91 22 3982 5500 E-mail: [email protected]