Telecom Sector Update - Gross revenue trends

India Infoline News Service | Mumbai |

FY12 wireless industry gross revenues grew ~15% yoy led by large incumbents like Idea and Vodafone.

FY12 wireless industry gross revenues grew ~15% yoy led by large incumbents like Idea and Vodafone. Q4 revenues grew slower at 2.9% qoq vs 5.2% in Q3. Idea retained its industry leading revenue growth of 7.1% qoq in Q4, the same as that of new entrant Uninor. Bharti posted a subdued 0.7% rise while BSNL+MTNL combine experienced sequential GR decline. Rcom continues to lose revenue share in Q4 while Aircel share remained stable. The trend performance of RMS leaders in 6 key circles indicates these have lost revenue share since Q1 FY11 while the 2nd/3rd operator have shown mixed performance. Familiar but unresolved issues like 2G spectrum pricing, excess spectrum charge and refarming continue to pose challenges to incumbent balance sheets; albeit we retain our BUY ratings on Bharti and Idea while Rcom remains a Market Performer.  


FY12 industry revenues up 15% yoy led by Idea & Vodafone

FY12 wireless gross industry revenues were up 15% yoy to ~US$25bn driven by Idea and Vodafone. Q4 gross revenues increased 2.9% qoq slower than the 5.2% rise seen in Q3. While Bharti trailed industry growth in Q4, Idea yet again outpaced it with 7.1% qoq rise which helped RMS inch up to 15%, up 58bps qoq. In other details, Rcom continues to cede revenue share (down 34bps qoq to 8.2%) and was overtaken by Tata with 8.8% share.  

 

RMS of key circle leaders in a downtrend since Q1 FY11

RMS trend of leading operator in 6 key circles indicates that leaders have gradually lost RMS since Q1 FY11 but resulting gains have not always accrued to the 2nd/3rd players. On an encouraging note, Idea has managed better revenue growth than peers in its 13 established circles even as revenue outperformance in 9 new circles is more along expected lines.


Prefer Bharti & Idea amidst regulatory uncertainty

Regulatory upheaval remains the biggest stumbling block to improved stock performance in our view. We continue to prefer Bharti and Idea as the former has the best balance sheet in the sector while latter is set to report ~19%/64% revenue/PAT cagr over FY12-14 with 200bps jump in EBIDTA margin. Both the stocks are trading at the lower end of their respective 1-yr fwd EV/EBIDTA ranges and potential returns outweigh any looming regulatory risks. Rcom remains a MP.


Valuation summary 
  Bharti Idea Rcom
Y/e 31 Mar (Rs m) FY13E FY14E FY13E FY14E FY13E FY14E
Revenues 815,166 921,138 236,208 275,676 212,623 221,783
yoy growth (%) 14.0 13.0 21.2 16.7 8.1 4.3
Operating profit 286,123 336,215 64,721 76,914 63,362 66,313
OPM (%) 35.1 36.5 27.4 27.9 29.8 29.9
Reported PAT 64,832 91,141 12,031 19,443 4,938 5,814
yoy growth (%) 52.2 40.6 66.4 61.6 (46.8) 17.7
             
EPS (Rs) 17.1 24.0 3.6 5.9 2.4 2.8
P/E (x) 18.3 13.0 21.2 13.1 26.8 22.8
Price/Book (x) 2.1 1.8 1.8 1.6 0.4 0.4
EV/EBITDA (x) 5.6 4.2 6.4 5.0 7.3 6.3
Debt/Equity (x) 0.8 0.5 1.1 0.9 0.9 0.8
ROE (%) 12.1 14.9 8.8 12.8 1.3 1.6
RoCE (%) 12.1 15.5 10.0 12.4 3.6 3.6
                 
Source: Companies, India Infoline Research
 

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