India Telecom

3G over, the game begins now

May 19, 2010 „ Bharti, Rcom & Vodafone secures Mumbai & Delhi in 3G auctions:
Bharti Airtel, Vodafone & Reliance Communications have overbid all
Nishna Biyani others in the fray to get the two most lucrative circles i.e, Mumbai &

Sector Update
NishnaBiyani@PLIndia.com Delhi for Rs 65.6bn. However, all incumbents have got anywhere
+91-22-6632 2259
between 9-13 circles in their kitty.
„ No single pan-India operator: All incumbents have bid carefully
considering their circles of strength where they enjoy high revenue
3G Outflow market shares. Hence, there was no single operator who have secured a
No. of Payout pan-India 3G spectrum
circles (Rs Bn)
„ Funding to be managed in next 10 days: Telcos are looking to fund the
Bharti Airtel 13 123.0
Idea cellular 11 57.7
3G spectrum price through domestic debt initially which shall at a later
Reliance Comm 13 85.9 date be converted in to ECB’s.
Vodafone 9 116.2 „ Challenging times ahead for Rcom & Idea, Bharti looks the most
Tata 9 58.6 favourably placed: 3G auctions for a pan India license ended at Rs
Aircel 13 65.0
168bn. Considering the recent fall in telcos (~15-24% of price) accounting
Stel 3 3.4
for one time spectrum charge payout on 2G & 3G over-bidding, the price
correction was too steep. We are expecting near term outperformance
in Bharti of 6-8% citing end of 3G auction uncertainty & almost most
of the negative news about competitive intensity, Regulatory
Circle wise operator split of 3G
interferences & falling tariffs priced in. However, we remain concerned
Metro s A Circles B Circles C Circles about 100% payment to be made for spectrum in a duration of 10 days &
7 6 6 spectrum allocation for 3G will be available only by September 2010. The
6 5 network rollout for 3G will take another 3-6 months. Hence, FY11 will
5 4
4 not see much revenues accruing from 3G but the interest burden on
33 3 3 3 3
3 2 2 2 spectrum charges paid would weigh on earnings. However, 3G services
2 will open new revenue streams for operators which shall help to cushion
1 0 0 0 the steep drop in ARPUs. We recommend a trading BUY in Bharti Airtel &
0
continue to maintain our Reduce rating in RCom & Idea cellular.
Bharti

Idea

Vodafone
Rcom

Source: DOT

Key Financials
CMP Rating EPS (Rs) EPS PER (x) EV/EBITDA (x)
(Rs) CAGR
FY10 FY11E FY12E 10-12 FY10 FY11E FY12E FY10 FY11E FY12E
(%)
Bharti Airtel 260 Trading 23.6 19.1 20.6 (6.7) 11.0 13.6 12.6 6.4 6.4 5.5
BUY
Reliance Comm. 137 Reduce 22.8 13.2 16.9 (32.1) 6.0 10.4 9.0 5.8 6.3 5.3
Idea Cellular 53 Reduce 2.9 1.8 1.4 (31.5) 18.2 30.1 38.9 7.0 7.7 7.0
Source: Company Data, PL Research (Prices as on May 19, 2010)
 India Telecom

Telcos stock performance during 3G bidding

3G begins 3G ends Stock Mcap (Rs bn) 3G payout Mcap/3G Gross Block
Market price Market price performance (Rs bn) payout (x) FY11 (Rs bn)
on 9 April 19 may 2010
(Rs) (Rs)
Bharti Airtel 308 259 -15.9% 986 123 8.0 899
Reliance Comm. 179 136 -24.0% 282 86 3.3 1,007
Idea Cellular 67 53 -21.9% 173 58 3.0 368
Source: PL Research

Circle-wise winner’s
Circles Slots Final 3G price (Rs m)
1 2 3 4
Delhi Vodafone Bharti Reliance 33,169
Mumbai Reliance Vodafone Bharti 32,471
Maharashtra Tata Idea Vodafone 12,578
Gujarat Tata Vodafone Idea 10,761
AP Bharti Idea Aircel 13,731
Karnataka Tata Aircel Bharti 15,799
Tamilnadu Bharti Vodafone Aircel 14,649
Kolkatta Vodafone Aircel Reliance 5,443
Kerala Idea Tata Aircel 3,125
Punjab Idea Reliance Tata Aircel 3,220
Haryana Idea Tata Vodafone 2,226
UP East Aircel Idea Vodafone 3,646
UP West Bharti Idea Tata 5,140
Rajasthan Reliance Bharti Tata 3,210
MP Idea Reliance Tata 2,584
West Bengal Bharti Reliance Vodafone Aircel 1,236
HP Bharti Stel Idea Reliance 372
Bihar Stel Bharti Reliance Aircel 2,035
Orissa Stel Aircel Reliance 970
Assam Reliance Bharti Aircel 415
North East Aircel Bharti Reliance 423
J&K Idea Aircel Reliance Bharti 303

May 19, 2010 2

 India Telecom

Prabhudas Lilladher Pvt. Ltd.

3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai-400 018, India
Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209

Rating Distribution of Research Coverage

60% 57.1%

50%
% of Total Coverage

40%

30%
21.4%
18.6%
20%

10%
2.9%
0%
Buy Accumulate Reduce Sell

PL’s Recommendation Nomenclature

BUY : Over 15% Outperformance to Sensex over 12-months Accumulate : Outperformance to Sensex over 12-months

Reduce : Underperformance to Sensex over 12-months Sell : Over 15% underperformance to Sensex over 12-months

Trading Buy : Over 10% absolute upside in 1-month Trading Sell : Over 10% absolute decline in 1-month

Not Rated (NR) : No specific call on the stock Under Review (UR) : Rating likely to change shortly

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May 19, 2010 3