03. Equity Research- Telecom Service Providers by Abhishek Ghosh_0 (1)

7/23/2019 03. Equity Research- Telecom Service Providers by Abhishek Ghosh_0 (1)

1/14

Report

On

Equity Research

Telecom Service

Providers

By

Abhishek Ghosh

B!TE"#$ B#%BA&ES'AR


2/14

(ated) *th+une$ ,-./

ContentsA. Fundamental Analysis

i. Factors Afecting Stock Movementsa.Bharti Airtelb.Idea Cellular

c.MTNd.!eliance Communicatione.Tata Communication". Tata Teleservices

ii. Table# Fundamental Analysis

overvie$iii. %hy is it necessary to kno$ the

"actors afecting the a"oresaid stock

movement in the ca&ital markets'iv. (resent Condition o" the Stocks

B. Technical Analysisi. Movements )stimating *iscounting

!ates $ith Beta Analysisii. Charts

a.)stimated *iscounted !atesb.Bottom+,& Betac.*ebt+)arnings !atiod.Com&arative Chart o" Stocks

o"Telecom Service (roviders -

S)NS) - Analysis

e.Sense/ !etreat


3/14

Fundamental Analysis

Factors Afecting Stock

Movements

Bharti Airtel

Net profts dropped by 41% rom US$470 million in 2009 to US$291 million

2010 due to a US$188 million increase in radio spectrum car!es in "ndia

and an increase o US$10# million in debt interest

n 18 ctober 201& 'irtel announced tat it ad ac(uired 100 percent

e(uity sares o )ireless *usiness Ser+ices ,ri+ate -imited or anundisclosed sum& ma.in! it a /olly o/ned subsidiary in te initial 'irtel

ad sta.es 0 49% /ic !a+e te company a 4 presence in te 18

circles& later to 1% sta.e and fnally 100%

"n 3ecember 2014& 'irtel can!ed its ser+ice terms or 2 and data

pac.s /it a car!e on usa!es /it a e/ oers some /it a +alidity o 28

days 5e 56'" cie 6aul ullar said tat 'irtel cannot be eld

responsible or +iolatin! net neutrality because "ndia as no re!ulation

tat demands net neutrality aced criticism on social net/or.in! sites li.e

aceboo.& 5/itter and 6eddit and later on 29 3ecember 2014& it /as

announced tat tey /ould not be implementin! planned can!es&pointin! out tat tere /ere reports tat 56'" /ould be soon releasin! a

consultation paper on te issue

'pproaced te !lobal debt mar.et on )ednesday to raise up to $1 billion

in a 10year bond sale pro!ramme

5e ea+ily indebted company ad it te ore: debt mar.et trice raisin!

more tan $2 billion

5e company ad posted a 0 per cent rise in net proft at 6s 1&2

crore or te ;arc (uarter dri+en by data re+enue *ut its 'rica business

continued to bleed /it increasin! losses and declinin! re+enue te loss

increased to 6s 1&18 crore rom 6s #4 crore in te same (uarter lastyear& /ile or anian 5elecommunications ?ompany -imited @55?-A

rom "ndiaBs mobile operator *arti'irtel in a transaction /ort $7 million


4/14

5e parent company o 'irtel Ni!eria& *arti 'irtel o "ndia& as secured a

fnancin! o up to $2 billion rom t/o top ?inese ban.s& te ?ina

3e+elopment *an. @?3*A and ?ommercial *an. o ?ina& as te company

aims to in+est urter in te !ro/t o its mobile data net/or.s

Sares o *arti 'irtel ended te day at 5e stoc. ended te day at 6s

420C up 98%

UDs Eodaone roup ,lc on 5ursday said tat it as sold its oldin! in

*arti 'irtel& "ndiaDs top telecom operator& or $200 million @6s1&280 croreA

to *arti =nterprises to conorm /it re!ulatory needs

'irtel is leadin! te broadband F /ired and /ireless F mar.et in "ndia in

;arc 201 /it 2219% second in /ired but topped in /ireless

broadband /it 208 million subscribers

Im&actsG

*arti 'irtel declined 12 percent in S=NS=H on 1st

Iune but !ained 09 percent at te close on )ednesday 't 2 pm te sare /as tradin! at 6s 42190&

as a!ainst 6s 4179 at close on 5uesday No/& on rdIune te closin! price o

te sares is 6s 4212 up by 0 ie& 079% increase rom te closin! on 21 st

;ay at 6s 400 5e trailin! ,J= o te company is at 02 as per te last

(uarter in te report and te company is in te top o 6e!ime o te 5elecom

Ser+ice ,ro+iders 5e =,S basin! on trailin! o 12 mont time is 1297 accordin!

to last (uarter

dea "ellular 0td "dea ?ellular& "ndiaBs tirdlar!est mobile operator& is reportedly /or.in!

on a "N678 billion @$12 billionA deal to sell its independent to/er

business in /ic te ;alaysiaBs ':iata and 'merican 5o/er ?orporation

@'5?A a+e e:pressed interest in te business& /ic comprises 11&000

to/ers also *arti "nratel is interested in te deal

"deaBs moneyraisin! sceme comes sortly ater "ndiaBs recent @and

e:pensi+eA spectrum auctions& in /ic "dea emer!ed as te bi!!est

spender& sellin! out about "N60 billion Debt-laden after the expensive spectrum auctions, top domestic telcos have been

seeking fresh capital-raising plans and value-unlocking moves.

"ndiaBs lar!est operator& 'irtel& raised $10 million in ebruary trou! a

sale o sares in *arti "nratel& /it te proceeds earmar.ed primarily or

debt reduction 'irtel remains te maKority sareolder in *arti "nratel&

o/e+er& /it a 72 per cent sta.e

'ditya *irla controlled"dea ?ellular reported a stron! set o numbers last

fscal& bac.ed primarily by data !ro/t

, -a.sminarayana& ?ie peratin! Lcer @?orporateA o "dea ?ellular&/as recently in ol.ata as "dea !ears up to launc its o/n ser+ice ere


5/14

"n an inter+ie/ to *usiness-ine& e spo.e about te companyBs

perormance& !ro/t o +oice data& mobile tari mo+ements and 4

ser+ices

M5e cape: plan or te company durin!


6/14

"ncome rom operations increased to 6s 87#42 crores durin! Ianuary

;arc (uarter o 20141 fscal a!ainst 6s 8417 crores in te

correspondin! period o te pre+ious year& te company said in a *S=

flin!

;5N-Ds total e:penses increased sarply to 6s 1&418#2 crores durin! te

ourt (uarter o last fscal rom 6s 7980 crores in te same (uarter in

20114 fscal

"ncome rom operations rose sli!tly to 6s &40008 crores in 20141

rom 6s &917 crores in te pre+ious year

"ntroduced unlimited ree local callin! at ni!t or its landline and

broadband customers to any net/or.& eecti+e rom ;ay 1

Union minister or communications and inormation tecnolo!y 6a+i

San.ar ,rasad con+eyed tat tey a+e +arious plans re+i+e te telecom

company rom its losses

Up!radin! 1080 sites in 3eli and ;umbai& and 82 2 sites in 3eli

and #1# 2 sites in ;umbai ,lannin! to come up /it )ii ser+ices in teir respecti+e cities /it initial

plan o mbps at prominent places or an yearly subscription o 6s 00

,lannin! to supply i! (uality 0 to 100 ;bps broadband at ome to

brin! i! speed ser+ices in all te buildin!s o ;umbai pro!ressi+ely

trou! 2 la. .m o fbre cables

5e tar!et is to a+e a million customers trou! reasonable and

ambitious pricin! ran!e o 100 * or 6s999

'dded 10&84 mobile subscribers in 'pril& 201 ollo/in! te addition&

companyBs total subscriber count stood at 44 la. /it a mar.et sare

o 048% Staterun ;5N- as said *arti 'irtelDs D>ero ratin! planD and 6?omDs

Dinternetor!D sceme deeat te basic concept o net neutrality and suc

pacts sould not be allo/ed as tey aect economic interests o small

telecom operators M"n 'irtel D>ero ratin! planD and 6eliance Dinternetor!D

tese operators a+e directly ne!otiated /it te application pro+iders

;5N- is o te +ie/ tat in any case& direct ne!otiations bet/een 55

players and 5S,s sould not be allo/ed&M te telecom operator said in its

counter comments submitted to sectoral re!ulator 56'"

M"n any o te cases& te basic concept o net neutrality ie DNo

discriminationJa+our or any specifc 55 ser+iceJs in terms o cost andaccess to subscribersD /ill be deeated&M ;5N- said

;5N- /it 114 million subscribers in /ired broadband connection

Im&acts

n Iune 04& 201& at 1G rs ;aana!ar 5elepone Ni!am /as (uotin! at 6s

1#& do/n 6s 00& or 02 percent 5e 2/ee. i! o te sare /as 6s

910 and te 2/ee. lo/ /as 6s 100 5e latest boo. +alue o te company

is 6s 408 per sare 't current +alue& te pricetoboo. +alue o te company

/as 04#


7/14

Reliance "ommunications

6eliance ?ommunications is pursuin! multiple dele+era!in! options&especially in noncore assets& /ic sould elp it lo/er net debtto

=*"53' ratio to almost by ;arc 2017& te companyDs mana!ement

said on 1stIune asset monetisin! plans @to/er assetsA to lo/er te debt

5e companyDs plans include a potential sta.e sale in its to/er unit& te

sale o its international business unit and real estate sales

6eliance ?ommunications& /ic posted a 4# percent Kump in ourt

(uarter proft elped by increased data usa!e by subscribers& also said it

/ould step up installation o to/er sites tis year to cater to te risin!

data potential in "ndia

"n+est about 6s 1&002&000 crore in te current fscal to increase its databusiness& a top oLcial as said as te company is in tal.s /it 6ussiaDs

Sistema or possible Koint +entures& said its total data customer base !re/

2#2 percent o+er last year& to 7 million

;ade 228 billion rupees in proft durin! te (uarter ended ;arc 1 201&

compared /it 1# billion rupees te same (uarter last year

5e 'nil 'mbanio/ned company& /ic /ants to sell its entire sta.e in

6eliance "nratel& may settle or a 1% sale at te least and as as.ed or

bids rom ban.ers includin! ;or!an Stanley& *an. o 'merica ;errill -ync

and I; inancial to run te process& people amiliar /it te matter said

6eliance "nratel& /it some 4&000 to/ers and o+er 120&000 .m o intraand intercircle fbre& trails "ndus 5o/ers and *arti "nratel in ran.in!s by

number o to/ers

6eliance ?ommunications /it 78 million subscribers in /ireless

broadband ser+ice pro+ider /it a sare o as 801 percent in te

broadband sector.

Im&acts#

6comDs i! le+era!e and strained li(uidity profle& tereby /ea.ly positionin! it

in its ratin! cate!ory but mana!ement as underta.en te monetisation Sare

prices dropped drastically rom 6s 181 on 22nd;ay to 8 on 4tIune& at

14G1# pm 5e all o te sare prices as been !oin! on or te last t/o monts&

it /as around 10 in te middle o 'pril "tBs 5railin! ,J= is si!nifcantly +ery lo/

or an industry li.e 6eliance as it /as u!ely debt ridden or te past couple o

years and te company is !oin! trou! a can!e in its capital structure li.e

monetisation o to/er assets to !et rid o debts but it ad a Kump in its (uarterly

profts o 4#% 5e ,rice to *oo. +alue is 020 lo/er tan its competitor *arti

'irtel and "dea ?ellular

Tata "ommunications


8/14

5ata ?omm aims 40% !ro/t rate in media bi> trou!


9/14

5ata 5eleser+icesB /oes continued /it te company reportin! a 6s &84#

crore loss in 20141 5ata Sons& te !roup oldin! company& inused 6s

1&02 crore on te last day o te fnancial year& so tat 5ata 5eleser+ices

could meet its fnancial obli!ations

5ata 5eleser+icesB re+enues increased mar!inally to 6s 10&944 crore rom

6s 10&42 crore in 20114& /en te 5ata !roup pumped in 6s 2&00

crore trou! compulsorily con+ertible preerence sares "n 20114& te

company made a record loss o 6s #&1## crore& /it its net /ort

completely eroded

5e company participated in auctions tis ;arc and /on spectrum in

'ndra ,rades& 3eli and Paryana by biddin! 6s 4&04 crore 5ata

5eleser+ices as paid 6s 1&09 crore in ad+ance to te Union !o+ernment

or te air /a+es

inance costs rose to 6s 2( crore in 20141 rom 6s 2&12 crore in te

prior year 5e companyBs debt rose to 6s 27&082 crore in 20141 rom 6s

24&0# crore in 20114 3ocomo as mo+ed te -ondon ?ourt o 'rbitration to orce te 5ataBs to

buy bac. its 2# per cent sta.e or 6s 7&200 crore 5e 5ataBs a+e sou!t

permission to buy te sares but te !o+ernment did not allo/ te

transaction& citin! a bar on predetermined +aluation

5ata 5eleser+ices lost spectrum in tree circles ater te Supreme ?ourt& in

ebruary 2012& cancelled 122 licences issued in 200809& /en ' 6aKa /as

te telecom minister in te United ,ro!ressi+e 'lliance !o+ernment 5e

company /as not allotted spectrum in te 3eli circle in spite o a+in!

paid or it

Im&acts#

n Iune 04& 201& 5ata 5eleser+ices @;aarastraA closed at 6s ##2& up 6s 012&

or 18 percent 5e 2/ee. i! o te sare /as 6s 140 and te 2/ee.

lo/ /as 6s #2 5e latest boo. +alue o te company is 6s 118 per sare 't

current +alue& te pricetoboo. +alue o te company /as 044

Fundamental Analysis overvie$

0*ata Based the on &eriod bet$een 11.23.1245+14+23+12436

)lements

Bharti

Airtel

imited

Idea

Cellular

imited

MTN

!eliance

Comm

imited

Tata

Comm

imited

Tata

Tele

ServicesCurrent BS)

(rice

40000 177 1780 181 4710 74

Current NS)

(rice

947 171 178 #4 48 7

31 %eek 7igh

BS)

427 209 91 1#9 049 140

31 %eek o$ BS) 2#7 1298 1# #9 181 71


10/14

31 %eek 7igh

NS)

427 204 89 172 08 141

31 %eek o$

NS)

2## 1298 1# #7 1 7

MarketCa&italisation

170&0094 #2&218

1&077

1#&8728 12&4478 1&821

Face 8alue 10 10 10 10)arnings (er

Share 01245+43

!e&ort6

1#1 09 12421 7 28#

(rice+)arning

!atio 01245+43

!e&ort6

242 4 014 7 28#

No. o" Shares0in

akhs6

9974 &19#

2

#&00 20&42748 19&4928 2&8000

BS) Sense/ 2#87 2#87 2#87 2#87 2#87 2#87NS) Ni"ty 81 81 81 81 81 81(9)0TTM6 02 781 228 287 22# NJ'

Industry (9) 1429 1429 14#2 1429 14#2 9#7*iv: #00% 400% 000% 000% 400% 000%

*iv ;ield : 04% 02% 000% 000% 109% (rice9Book 22 98 020 047 149

(9C 902 9# 28 7# 892 BS) Code 244 2822 0010

8

2712 0048 271

NS) Symbol *P'65"'65

-

"3=' ;5N- 6?; 5'5'?;

;

55;-

%hy is it necessary to kno$ the "actors afecting the

a"oresaid stock movement in the ca&ital markets'

's a stoc. trades /itin its 2/ee. price ran!e @te ran!e tat e:ists bet/een

te 2/ee. lo/ and te 2/ee. i!A& in+estors may so/ increased interest

as price nears eiter te i! or te lo/ ' popular strate!y used by stoc.

traders is to buy /en price e:ceeds its 2/ee. i!& or to sell /en price allsbelo/ its 2/ee. lo/ 5e rationale beind tis strate!y is tat i price brea.s

out rom te 2/ee. ran!e @eiter abo+e or belo/A tere /ill be enou!

momentum to continue te price mo+e in a a+ourable direction

'lternati+ely& anoter strate!y is to sell /en price reaces its 2/ee. i! on

te assumption tat price /ill recede& or to buy /en price reaces its 2/ee.

lo/ in anticipation o a +alue play 5raders and in+estors typically conduct

additional tecnical andJor undamental analysis or confrmation

(resent Condition o" the Stocks


11/14

5elecom stoc.s declined 5ata 5eleser+ices @;aarastraA @do/n 80#%A& 6eliance

?ommunications @do/n 82%A& ;aana!ar 5elepone Ni!am @do/n 44%A and

"dea ?ellular @do/n 02%A ed!ed lo/er

*arti 'irtel /as o 1% to 6s 41240 5e stoc. it a i! o 6s 4189 and a

lo/ o 6s 4090 so ar durin! te day 5e company announced beore tradin!ours on rd Iune 201& tat te company as approaced in+estors or issuance

o debt instruments in te orm o US dollar denominated Senior Unsecured

Notes 5e notes a+e an e:pected tenor 10 years 5e company /ill use te

proceeds or capital e:penditure in compliance /it enduse !uidelines set ort

in te ;aster ?ircular by te 6eser+e *an. o "ndia and all la/s and re!ulations

o "ndia applicable to te company 5e notes are e:pected to be listed on te

Sin!apore Stoc. =:can!e

Technical Analysis

)stimating *iscounting !ates $ith Beta

Analysis 011.23.1245+14+23+12436

Fig 4.4#=stimated 3iscounted 6ates


12/14

Fig 4.1#*ottomUp *eta @on te basis o 2 /ee. Pi!& 2 )ee. -o/A

' bottomup beta is estimated by startin! /it te businesses tat a frm

is in& estimatin! te undamental ris. or beta o eac o tese businesses

and ta.in! a /ei!ted a+era!e o tese ris.s

" lo/er tan one te ris. is lesser tan a+in! stoc. at more one beta orclose to one 's& 5ata 5eleser+ices ad a continuin! losses *arti Q "dea at

te top o te business and 5ata ?omm is te most balanced position in

te mar.et 6eliance is capitalisin! teir assets so teir beta a+era!e is

lo/er tan e:pected and on te oter and ;5N- is tryin! to re+i+e

temsel+es

Fig 4.


13/14

Fig 4.5G ?omparati+e ?art o Stoc.s o 5elecom Ser+ice ,ro+iders Q S=NS=H

Analysis#

"ndiaDs telecommunication net/or. is te second lar!est in te /orld based on

te total number o telepone users @bot f:ed and mobile poneA "t as one o

te lo/est call taris in te /orld enabled by te me!a telepone net/or.s and

ypercompetition amon! tem "t as te /orldDs tirdlar!est "nternet user

base *ut in te current scenario& te industry is acin! a diLcult time in te

telecom ser+ice pro+ider and can be /itnessed in te ?omparati+e cart tat is a

u!e +olatility in te mar.et /it alarmin! returns 5e contro+ersy re!ardin!

te net neutrality as ta.en a toll in te telecom industry& li.e 'irtel Rero 5e

bottommost !rap so/s number o +olumes traded and on /ic te in+estors

are interested to deal on te stoc.s Pi!er te +olume& Pi!er te in+estorsinterest or +ice +ersa tus increased demand 'nd te uctuation in te oter

!rap lines so/s tat te pricin! le+el o stoc.s& i! trade or lo/ trade *elo/

te at line o a+era!e trade is lo/ trade and more tan te at line is i!

trade

*arti 'irtel -td and "dea ?ellular -td are rallyin! on optimism te e:pense o

securin! spectrum or 20 years /ill pay o as te /orldBs secondlar!est /ireless

mar.et !ro/s Net incomes at te t/o companies a+e climbed at least se+en

times aster tan te broader mar.et o+er te past si: (uarters as smartpones

costin! less tan $200 spur a Kump in mobiledata use "n a i!ly +olatile trade&

te bencmar. *S= Sense: ell by 24 points to 2#&8142 on 4 t Iune amid


14/14

sustained orei!n und outo/s tri!!ered by defcient monsoon orecast& 6*"Bs

cautious stance on economic reco+ery and rupee slumpin! to 20mont lo/

Sense/ !etreatG @SourceG "ndiaBs Sur!in! ,one Stoc.s So/ $18 *illion )as

)ell SpentA

;oney mana!ers a+e been pilin! into telecom companies amid a /ea.enin!

outloo. or oter industries 5e SQ, *S= Sense:& one o 'siaBs best perormin!

stoc. inde:es in 2014& tumbled to a si:mont lo/ on 5ursday @7 t;ayA amid

!ro/in! concern about ,rime ;inister Narendra ;odiBs ability to pus trou!

economic reorms

Spendin! on te /ireless spectrum /as #8 percent i!er tan te base price

set by te !o+ernment& accordin! to auction results released ;arc 2# *arti&

"dea and te UBs Eodaone roup ,lc retained air/a+es tat /ere up or

rene/al /ile also !ainin! spectrum tat enables tem to boost ourt

!eneration oerin!sT

'ccordin! to 'Kay Sri+asta+a& te mana!in! director at 3imensions ?onsultin!

,ri+ate e:pressed tat costs are f:ed or te ne:t 20 years e+en as te mar.et

continues to !ro/

Documents

03. Equity Research- Telecom Service Providers by Abhishek Ghosh_0 (1)