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Telecom
COAI presentation to Government
Claims TRAI recos imply 30p/min increase in outgoing tariffs v/s TRAI's calculation of 3.6p/min
The GSM industry association, COAI (Cellular Operators Association of India) has released its presentation made to the Communications Minister, Mr Kapil Sibal, on 8 May 2012. According to COAI, TRAIs recent recommendations on spectrum auction will lead to an increase in outgoing tariffs by 30p/minute almost 8x TRAIs calculation of 3.6p/minute. An additional 30p/outgoing minute outlay would reflect an increase of ~40% on the current estimated revenue per outgoing minute of 70-75p for GSM incumbents (RPM of 42-44p). COAI has cited several fallacies in TRAIs calculations, including the following: (1) TRAIs MOU assumptions include incoming minutes, which are nonchargeable at the customer-end, (2) lower spectrum assumed by TRAI v/s assigned quantity, (3) no provision for further spectrum requirement to support assumed MOU growth, (4) spectrum requirement for future data traffic not considered, (5) ignoring the impact of revenue sharing license fee and service tax, and (6) no impact of price elasticity built into TRAI calculations. COAI estimates that proposed re-farming would result in ~INR1,250b incremental capex and ~INR250b asset write-off for the industry (mainly Bharti, Idea, BSNL/ MTNL, Vodafone, and Aircel). We continue to believe that TRAI recommendations are impractical and would face stiff resistance from the industry. The government is expected to arrive at a conclusion on spectrum auction soon, given the Supreme Court deadline of 31 August to complete 2G auction. We do not rule out a prolonged legal battle, given significant divergence in the stance of the industry and the government/regulator. While the regulatory environment remains challenging, our target price for Bharti/Idea already incorporates regulatory risk outlay of INR142b (INR37/share) for Bharti and INR121b (INR37/share) for Idea. Over FY12-14, we expect 18/26% EBITDA CAGR for Bharti/Idea, led by 10/14% traffic CAGR and 2/2% RPM CAGR in the India wireless business. Reiterate Buy on Bharti, with a target price of INR390, and Idea, with a target price of INR100. Maintain Neutral on RCom.
Comparative valuations
CMP (INR) 310 79 68 Rating TP Upside EV (INR) (%) (USDb) Buy 390 25.8 22.2 Buy 100 26.0 4.9 Neutral 85 24.6 2.6 FY11 19.5 29.0 9.4 P/E (x) FY12E 27.6 36.1 18.1 FY13E 17.0 16.0 12.2 EV/EBITDA (x) FY11 FY12E FY13E 9.0 7.9 6.4 9.7 7.7 5.6 7.0 7.8 6.1 EV/Sales (x) FY11 FY12E FY13E 3.1 2.7 2.3 2.4 2.0 1.6 2.2 2.5 2.1 Source: Company/MOSL
Telecom
COAI calculations to ascertain true tariff impact @ TRAI reserve price (p)
Tariff Impact as per TRAI - A 3.6 Add back non-voice component not included - B 0.8 Tariff impact as per TRAI including non-voice - C = A + B 4.4 Total industry outlay used by TRAI (576MHz) INR937b Actual outlay required considering current spectrum in use (1167MHz incl 437MHz in 900 band) INR2,849b Impact vs TRAI reco (x) - D 3.0 Corrrection required to consider only outgoing MOU vs all MOU (x) - E 2 Total impact on tariff post these corrections - F= C*D*E 26.5 Estimated savings to account for lowering of spectrum charge to 1% -2.1 Impact post spectrum charge savings 24.3 Impact of regulatory levies like service tax (12%), licence fee (8%), spectrum charge (1%) 5.1 Total tariff impact after adjusting TRAI assumption for anamolies ~30 Source: COAI/MOSL
10 May 2012
Telecom
Adjustment #4: (Subtract 2.1p) The positive impact of proposed reduction in spectrum charges from current 5-6% of AGR for GSM incumbents to 1% of AGR would lead to a cost reduction of ~2.1p/ minute. Adjustment #5: (Multiply by ~1.2x) Regulatory levies like service tax, revenue sharing license fee and spectrum charges are variable costs linked to revenue. Cumulative adjustment for these would be ~21%. Re-farming to impact in several ways Impact of re-farming would be manifold given (1) increased tariffs due to additional cost of network and spectrum, (2) lower quality and coverage of the mobile network, and (3) higher energy requirement, as cell-site base will have to be increased. COAI has estimated an incremental capex of INR1,250b required by GSM incumbents in case re-farming takes place.
ARPU-adjusted price comparison for spectrum
Source: COAI/MOSL
10 May 2012
Telecom
Source: COAI/MOSL
10 May 2012
Telecom
7.8 7.8 6.2 7.8 6.2 6.2 6.2 4.4 6.2 6.2 6.2 4.4 4.4 6.2 100.4
7.2 6.2 6.2 6.2 6.2 4.4 6.2 6.2 6.2 6.2 4.4 39.8
7.8
65.2
68.0
Comparative valuations
CMP (INR) 310 79 68 Rating TP Upside EV (INR) (%) (USDb) Buy 390 25.8 22.2 Buy 100 26.0 4.9 Neutral 85 24.6 2.6 FY11 19.5 29.0 9.4 P/E (x) FY12E 27.6 36.1 18.1 FY13E 17.0 16.0 12.2 EV/EBITDA (x) FY11 FY12E FY13E 9.0 7.9 6.4 9.7 7.7 5.6 7.0 7.8 6.1 Net Debt/EBITDA (x) FY11 FY12E FY13E 3.0 2.7 2.5 2.8 2.6 1.7 4.9 5.6 4.3 EPS (INR) FY12E FY13E 11.2 18.3 2.2 4.9 3.8 5.6 EV/Sales (x) FY11 FY12E FY13E 3.1 2.7 2.3 2.4 2.0 1.6 2.2 2.5 2.1 Net Debt/Equity (x) FY11 FY12E FY13E 1.2 1.2 1.0 0.9 1.0 0.8 0.9 1.0 0.9 EPS Gr. (%) FY11 FY12E FY13E -32.6 -29.6 62.6 -11.6 -19.6 126.1 -69.4 -48.0 48.1 Source: Company/MOSL
RoIC (%) FY12E FY13E 6.1 8.6 5.8 8.8 3.1 4.0
RoE (%) FY12E FY13E 8.1 12.3 5.7 11.8 2.1 3.2
EBITDA Margin (%) FY11 FY12E FY13E 33.6 33.2 35.0 24.5 26.1 29.1 31.9 32.0 34.4 EBITDA Gr. (%) FY11 FY12E FY13E 19.1 18.8 19.4 11.3 34.3 33.2 -16.9 -1.5 18.9
Capex/Sales (%) Sales Gr. (%) FY11 FY12E FY13E FY11 FY12E FY13E Bharti 24.2 19.6 20.9 42.1 20.2 13.3 Idea 57.0 19.8 14.7 24.5 26.0 19.2 RCom 62.6 7.0 8.6 -7.6 -2.0 10.6 * Proportionate EV/EBITDA and EV/sales
10 May 2012
Telecom
128 36 111 42 2.8 6 610 28 243 -25 459 -10 0.53 -17 38.7 34 10
162 27 145 31 2.9 3 792 30 201 -17 455 -1 0.44 -17 34.7 59 16 44 5 0.2 7.3 0.85 24 25
181 12 172 19 1.6 -45 889 12 188 -6 431 -5 0.44 -1 33.9 32 8 53 20 0.7 7.1 -2 1.51 37 27
200 10 190 11 1.5 -4 994 12 191 2 435 1 0.44 1 34.9 73 16 66 24 1.1 6.7 -6 1.05 22 30
212 6 206 8 1.0 -34 1,068 7 195 2 433 0 0.45 3 35.3 41 8 84 27 1.5 6.0 -10 1.36 25 34
10 May 2012
Telecom
10 May 2012
Telecom
10 9 Source: Company/MOSL
10 May 2012
Telecom
10 May 2012
Telecom
10 May 2012
10
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