Posts tagged telecom sector
What moved Sensex
Among expectations of good Q1 results, equity markets cheered this week with gains of 2.1% or 373 points for the week to close at 17,833 following a 0.6% loss last week.
Markets had lots of good news this week. IMF raised the projections for Indian growth rate for the year 2010 to 9.5% citing reasons like favourable financing conditions and robust corporate profits to drive expansion. For the year 2011, the forecast has been kept at 8.5%.
Progress of monsoon has been closely watched. IMD announced that monsoon has covered the whole of India about 10 days before schedule was taken favourably by the markets. Southwest monsoons are important for the agricultural sector of the economy as well is instrumental in containing the food prices which have been cause of concern since last year when monsoon was deficient.
Telecom sector saw considerable upside this week after a rating upgrade by Credit Suisse. A note from Credit Suisse said that concerns on competition, regulation, 3G auction fee and RIL’s entry have been overstated. Bharti Airtel rose 16.6% for the week.
Sugar sector gained after comments from Sharad Pawar regarding decontrolling the sugar prices.
Expectations of good Q1 numbers from companies are also driving the prices. Advance tax numbers have hinted at robust earnings.
Companies will start releasing Q1 results from next week onwards. Most of the good news has already been factored in the prices. Any results above the estimates will lead to more gains in the respective stocks. Two most important numbers from Govt viz IIP and monthly inflation figures will be released next week and will be closely watched.
To read earlier equity updates, click here
Author: Praveen Bajaj
Indian Telecom Sector – Results and Overview
OVERALL OUTLOOK:
- The three major Telecom Sector Operators Bharti Airtel , Reliance Communications & Idea Cellular came out with their Q2FY10 results in October 2009.
- While Bharti Airtel & Idea cellular came out with results around analysts expectations Reliance Communications posted figures which were way below street expectations
- The companies witnessed muted growth on top line front with sales not growing as analysts expected. This was due to less than expected growth in subscribers and with a decline in ARPU’s and MOU’s over the last five quarters
- Among the key revenue segments Wireless services registered a less than expected increase with Passive Infrastructure(towers) business registering a healthy increase The companies witnessed muted growth in EBITDA margins but PAT margins registered a healthy increase mainly on account of cost cutting and decreasing interest costs
- The current outlook of the telecom operators looks bleak considering growth which was a major factor for the valuations which the companies used to command is bottoming out because we are witnessing teledensity of more than 100% in the major metros which are major revenue drivers, intensifying competition because of entry of new players like MTS, Tata DOCOMO and with companies like Uninor, Swan, Loop due to start operations existing operators do have to slug it out to fight competition of falling call rates and subscriber churn
- Increasing competition and muted growth has made telecommunication a matured play and with the rural market being a low margin segment the rural growth story will not command higher valuations and with new services like 3G and Wimax being delayed due to regulatory hurdles the present outlook for the industry doesn’t looks favorable and with Mobile Number Portability (MNP) due to come there would be a churn in subscriber base making it all the more difficult for the existing players
- Our analysis concludes that declining sources of revenue, a declining trend witnessed in ARPU’s and MOU’S, saturation of urban customer base, increasing competition and regulatory hurdles makes telecom an unfavorable play to be in at the moment and until there is a clear picture on revenue front which would come out after 3G auctions and with the regulatory hurdles sorted out any valuations made for these companies would be unjustified so we would suggest staying away from this sector even though all major players have seen their stock price tumbling by 30-50% and with most of the damage already being discounted
- We strongly believe that Bharti Airtel is the only stock in the sector which is to some extent suited to investment and one can add the stock to their portfolio since it would benefit with entry into the 3G spectrum (largest 2G subscriber base) and value unlocking from Bharti Infratel and Indus Towers
- ARPUs have declined continuously with increasing competition leading to price wars
- MOUs have along being declining with saturation of high usage metro circle and entry into the low usage rural circles
- Bharti and Idea’s market share has declined and Reliance Communication’s has increased. However this is mainly on account of entry into the GSM spectrum
- All of this has lead to a slowdown in revenue growth, however the operating margins are maintained on account of reduction in advertising expenses and interest cost
Author: Rahul Sonthalia, Analyst, Kredent Group
