Morgan Stanley Report.
Morgan Stanley India Company Private Limited+
Vinay. [email protected] com +91 22 2209 7780
Surabhi. [email protected] com +91 twenty-two 2209 7149
May twenty, 2010
Sector View In-Line
3G Sale Done; Upgrade Industry to In-Line
Sector View: India Telecommunications Cautious to In-Line
We up grade our take on the India telecom market to In-Line for three causes: 1) The 3G public auction is lurking behind us; 2) tariff wars seem to have got subsided; and 3) the F4Q10 outcomes surprised all of us as they show revenue progress driven by higher moments of consumption (MOU). The 3G auction concluded by the end of day 34 of the bidding and 183 times. The overall permit fee stands at Rs168bn (US$3. 6bn), up 379% from the book price of Rs35bn (US$755mn). Bharti, Aircel, and RCOM won 3-G bids in 13 groups each, Idea won in 11 circles, and Vodafone and Tata won in 9 circles each. We estimate the federal government could raise ~Rs921bn (US$20bn) from the 3G and BWA auctions or perhaps 1 . 2% of the country's GDP. Tariff wars lurking behind us: Inside the five months since the launch of " per-second billingвЂќ by Tata and the " Simply RelianceвЂќ plan by Reliance Marketing and sales communications (which lowered all tariffs by 30%), we have certainly not seen any more reductions in tariffs in new releases. Most of the players now have related tariff packages. Hence, there isn't much difference for a consumer to choose a single operator in the other, barring nationwide footprint and service. However , post-paid tariffs remain costlier than pre-paid tariffs, and we expect them to along with the next quarter. Higher MOUs drive F4Q10: The group posted income growth of 1 ) 7% QoQ; and total EBITDA stopped falling. The growth was driven by total minutes, which rose 11% sequentially and over 30% YoY. Capex chop down to 15-20% of product sales; down by over thirty percent YoY.
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May 20, 2010 India Telecommunications
Bharti Can be Our Crucial Pick for Four Factors: 1) The stock provides underperformed BSE Sensex by 16% YTD, and 51% in the last a year, and thus its valuation is close to famous bottoms. 2) Higher MOUs drove F4Q10: The company published revenue growth of 1 . 9% YoY and 2 . 9% QoQ because absolute EBITDA declined four. 5% YoY and 2 . 3% QoQ. 3) Zain acquisition may contribute 10-15% of income and 20-25% of cash income in five years. We estimate Bharti would need to: 1) gain 5% additional in revenues, 2) inch margins in Zain assets up to closer to MTN's levels by 40%, and 3) lift capex coming from US$4bn to US$5. 7bn over five years to get the deal to get worth the US$9bn collateral value while agreed upon. 4) Bharti was selective in its 3G bids and earned 13 groups for US$2. 7bn against market expectations of an all-India license. Oddly enough, in 12 of the 13 circles, Bharti has 900 MHz variety, with the 13th circle getting Mumbai, the very best penetrated group of friends in the country. The DCF-based value target is usually Rs367, suggesting 41% upside from current levels. In our view, the sale of a risk in its tower business can provide a positive trigger and improve the "balance sheet".
However , we do not include Zain in our quotes for the company...