India Telecom Report PDF

.
QUARTERLY PERFORMANCE
ANALYSIS OF COMPANIES
(April-June 2008)
INDIAN TELECOM INDUSTRY
August 2008
Cygnus Business Consulting & Research Pvt. Ltd.

4th & 5th Floors, Astral Heights, Road No. 1, Banjara Hills, Hyderabad-500034, India
Tel: +91-40-23430203-05, Fax: +91-40-23430201, E-mail: info@cygnusindia.com
Website: www.cygnusindia.com
Disclaimer: All information contained in this report has been obtained from sources believed to be accurate by Cygnus Business Consulting &
Research Pvt. LTd. (Cygnus). While reasonable care has been taken in its preparation, Cygnus makes no representation or warranty, express or
implied, as to the accuracy, timeliness or completeness of any such information. The information contained herein may be changed without notice. All
information should be considered solely as statements of opinion and Cygnus will not be liable for any loss incurred by users from any1 use of the
publication or contents
QPAC-Indian Telecom Industry- April-June 2008
CONTENTS
EXECUTIVE SUMMARY.........................................................................................................3
INDUSTRY ANALYSIS ............................................................................................................4
OUTLOOK FOR THE SECTOR .............................................................................................7
INTER-FIRM COMPARISON..................................................................................................9
STOCK SCAN .........................................................................................................................12
COMPANY ANALYSIS ..........................................................................................................14

1. Airtel .................................................................................................................................14
2. MTNL...............................................................................................................................15
3. Reliance.............................................................................................................................16
4. Tata Communications .......................................................................................................17
5. Tata Teleservices ...............................................................................................................18
6. Avaya Global Connect ......................................................................................................19
7. HFCL................................................................................................................................20
8. Sterlite ...............................................................................................................................21
SOURCES & METHODS FOR COMPANY PROJECTIONS...............................................22
© Cygnus Business Consulting & Research Pvt. Ltd. 2008 2

EXECUTIVE SUMMARY
India’s economic growth has slipped to around 9% in 2007-08, from 9.6% in 2006-07. The dip in growth
has further deepened the fears of a possible global recession and rising inflation, and its overall impact on
the Indian economy. According to the official figures, industrial output growth has slipped to 8.6% in
2007-08, as compared with 11.6% in 2006-07. The agriculture and allied sector has grown a tad faster at
4.5% during 2007-08. The services sector is marginally upped, registering a growth of 10.7% in 2007-08,
as compared to 10.6% in 2006-07. India’s economic growth is expected to grow at 7.9% in 2008-09.
Service sector is one of the most significant sectors of the Indian economy, contributing nearly 55% to
the GDP in 2007–08. The Indian telecom industry continued its growth momentum for another
consecutive quarter with the overall sector registering a modest revenue growth of 25% during AMJ08
compared with AMJ07. The total number of telecom subscribers in the country touched 300m at the end
of March 2008, of which 261.07m were mobile subscribers and 39.42m were fixed/landline subscribers.
The wire-line subscriber base has shown marginal improvement in JFM08 as compared to last four
quarters, as subscriber base declined in each of theses quarters. There were 11.09m Internet subscribers
approximately at the end of March 2008 as compared to 10.36 million at the end of December 2007
registering a growth of 7.08%. This growth rate is slightly less than the growth rate of 7.64% at the end of
December 2007. The Average Revenue per User (ARPU) for the GSM, CDMA and broadband services
segment were at Rs264, Rs159 and Rs220 respectively for the quarter AMJ08.
Airtel remained the market leader with 32.16% GSM market share, adding 6.82m subscribers during
JFM08. Vodafone, with 22.09% GSM market share, was the second runner up, adding 4.27m subscribers
in JFM08. BSNL was at third place at 118.79% market share, Idea with 12.45% market share and Aircel at
5.51% market share. Meanwhile, in the CDMA segment, Reliance Communications is still the undisputed
leader with 56.71% market share followed by TTSL at 35.58%. The wire-line segment is still led by PSUs.
BSNL dominance in the fixed line remained intact with a market share of 82%, followed by MTNL at
9%. BSNL, with a share of 50.82% was the leading ISP followed by MTNL at 17.12% in JFM08.
For the purpose of inter-firm comparison, eight companies were taken across the industry for analysis.
Airtel’s revenue is estimated to touch Rs77.6 billion in AMJ08 and may grow at 38% from AMJ07.
Reliance is expected to ramp up a revenue to Rs36.5 billion. In terms of profits, Bharti Airtel is likely to
be the leader with EBDITA and PAT at Rs32.59 billion and Rs17.23 billion in AMJ08.
As per Cygnus estimates, the Indian telecom industry is expected to maintain the growth trajectory in the
AMJ08 quarter as well, with top-line growth of 25%. Industry’s OPM and NPM are expected to be
35.68% and 20.48% respectively.
With almost 5-6m subscribers added every month, the country is witnessing frenetic activity in the
telecom industry. This growth has outpaced predictions of reaching 100m by 2007 and 200m by 2010.
Now the estimate is 500m subscribers by 2010. The mobile population is expected to hover between
325m to 350m by end of 2008. With an estimated population of 1.136 billion, only 2% (16m) of the rural
population have access to mobile phones; the next growth segment is the rural areas.

INDUSTRY ANALYSIS
Industry Analysis
Industry Aggregate (Rs in m)
Overview
Telecom to register high growth in AMJ08 Particulars AMJ08 (E)
Net Sales 123436.52
Indian Telecom industry is one of the fastest growing
Change 25%
telecom markets in the world. In teccom industry, service
providers are the main drivers; whereas equipment EBITDA 43737.79
manufacturers are witnessing growth and decline in Change 32%
successive quarters as sales is dependent on order undertaken Depreciation 16530.13
by the companies. Airtel, Reliance, Tata and Sterlite are some
of the companies that are expected to spur the growth in Interest (811.27)
AMJ08, as compared to AMJ07. According to Cygnus Other Income 2123.46
estimates, telecom industry is expected to grow by 25% in PBT 30142.39
AMJ08 as compared to AMJ07, in terms of sales. EBDITA
and PAT are expected to grow by 32% and 34% respectively TAX 6293.93
in AMJ08 as cost expenses are being control by major Tax Rate 21%
companies like Airtel and Reliance. The major booster is the PAT 23848.46
wireless mobile subscriber base; crossing over 261m in
March 2008. Other services like Internet subscriber base has Change 34%
also provided significant impetus with its subscriber base Source: BSE India; Cygnus research
reaching over 11m in March 2008.
150 Telecom Industry Revenue: AMJ08 50
Note: The aggregate consists of eight companies for
industry aggregate calculation: Bharti Airtel, MTNL,
TATA Teleservices, Reliance Communications, VSNL,
125 Sales
Avaya Global Connect, HFCL and Sterlite Optical
Growth
Technologies.
Rs billion
100 25
%
75
50 0
AMJ07 AMJ08
Industry Operating Profit : AMJ08 30
Net Profit : AMJ08
55 50 28
25
EBDITA (RHS) PAT (LHS)
NPM (RHS)
OPM (RHS)
20
40 40
Rs billion
Rs billion
22
%
15
25 30 10
16
10 20
0 10
AMJ07 AMJ08 AMJ07 AMJ08
Source: BSE India; Cygnus Research

Cost Structure
70 Cost Structure-Equipment Manufacturers
60 Qtr ended AMJ08 vs AMJ07
50
% of Net sales
40 AMJ 2007 AMJ 2008
30
20
10
0
-10
Stoc k in Raw Traded Staff c ost Other Deprec iation Interest Tax
trade materials items expenditure
20 Cost Structure-Service providers

% of Net sales
15
AMJ 2007 AMJ 2008
10
5
0
-5
Administrative
Marketing exp
Network Opex
Depreciation
Other exp
License Fee
Tax
Interconnection
Staff cost
Interest
Sales &
Charges
exp
¾ For the quarter AMJ08, stock in trade for equipment manufacturers is expected to fall from
1.63% of sales in AMJ07 to -4.69% in AMJ08.
¾ Raw material cost is expected to rise to 60.58% of sales in AMJ08 from 55.17% in AMJ07.
¾ Other expenses, Interest and Tax are also likely to increase in AMJ08, as compared to AMJ07,
for the equipment manufacturing companies.
¾ Service provider companies are expected to show improvements in staff costs, Network
operations, Interconnect charges, and interests.
¾ Licence fee and sales and marketing expenses of service providers are likely to go up in AMJ08 as
compared to AMJ07.
Segmental performance
Telephone segment
Mobile Services
Wireless subscriber base in the country is witnessing strong growth and it is one of the major driving
forces in telecom industry. Wireless segment has added 95.96m subscribers in FY08. Bharti Airtel added
maximum number of subscribers - 24.84m followed by Reliance with 17.78m, Vodafone 17.69m, Idea
9.99m, BSNL 9.89, Tata Tele 8.31m and six other small players together added another 7.55m in FY08.

GSM
The GSM subscriber base reached 192.70 Wireless Subscriber growth
million in the quarter ending March 2008, 300 100
as against 172.23 million at the end of the
250 90
previous quarter. The growth for this
quarter is 11.89% as compared to previous 200 80
OND07 quarter. Bharti, with 61.98 million
In m
%
subscriber base, remains the largest GSM 150 70
mobile operator followed by Vodafone
100 60
with 44.13m, BSNL with 36.21m and and
Idea with 24.00m., 50 50
CDMA 0 40
The CDMA Subscriber Base reached 68.37 FY04 FY05 FY06 FY07 FY08
million during the quarter ending March Subscribers (LHS) Growth(RHS)
2008 as against 61.39 million at the end of Market share of GSM players
December 2007. The quarterly growth in
JFM08 is 11.37% as against 11.44% the Aircel
previous quarter. Reliance remains the BSNL Idea 6%
largest CDMA mobile operator followed 19% 12% Reliance
by Tata Teleservices and BSNL with 4%
subscriber base of 38.78m, 24.33m and Vodafone
4.58m respectively. BSNL in Kolkata & 23% Spice
Punjab reported negative growth. 2%
Bharti MTNL
Wire Line 31% 2%
The total subscriber base of Wireline BPL

services stood at 39.42 million as on 31st 1%
March 2008. The incumbents BSNL and Market share of CDMA players
MTNL have 80.05% and 9.33% market
share respectively in the subscriber base,
while all the five private operators together Tata HFC L
Tele 0.44%
have 10.62% share. Wireline subscriber
base has been declining in the last few 35.58% BSNL
years. Subscriber base for some of the 6.7% MTNL
companies like Bharti, Tata (Tele & 0.41%
Communications), MTNL and Reliance
increased marginally. On the other hand, Reliance Shayam
BSNL, Shyam and Telelinks have lost 56.7% 0.16%
marginal subscriber base in JFM08, as
compared to the previous quarter.
Other Telephone services Source: TRAI; Cygnus Research
Public Call Offices
During the JFM08, 2,83,883 new PCOs have been added. Total number of PCOs in the country, as on
31st March 2008, is 61,85,904. The share of BSNL is 20,51,518 i.e. 33% of the total PCOs. The share of
MTNL and other private operators combined are 2,39,335 (4%) and 38,95,051 (63%) respectively.
Village Public Telephones
There are 5,93,485 villages in India, as per census 2001 reported by BSNL. During the OND07, there
were 5,30,127 VPTs in the country whereas by the end of JFM08, the total number of VPTs reached to
5,59,503. Thus, 29,376 VPTs increased during the JFM08. BSNL reported increase of 1,547 VPTs during

the JFM08. All the five private operators

Market share of wireline players
together added of 27,829 VPTs during the
JFM08. The total number of villages, left
uncovered, are 33,982 as on 31st March
2008. MTNL
9%
Internet services BSNL

80%
Wire line Internet subscriber Others
11%
The growth trend of Wireline Internet
Subscriber indicates a slight increase in the
market share of operators owned by PSU.
During the AMJ08, private ISPs captured
only 32.06% market share as against Source: TRAI; Cygnus Research
33.96% in the Market Share of Top five ISP providers
preceding JFM07. ISP Subs. base Share in %
ISP market share, Bharat Sanchar Nigam Ltd 5640191 50.82
owned by PSU, Mahanagar Telephone Nigam Ltd 1899747 17.12
increased from Bharti Airtel Ltd (Bharti Televentures Ltd) 815360 7.35
66.04% to 67.94% Reliance Communications Infrastructure Ltd 696440 6.28
at the end of March Sify Technologies Ltd 576047 5.19
2008.
Leased Line Connectivity

The number of Internet Leased Line connections is 22752 at the end of March 2008, as compared to
21858 at the end of December 2007, registering a growth of 4.09%.
Broadband Connectivity (>=256 Kbps):

The number of Broadband subscribers (with a download speed of 256 Kbps or more) is 3.87m at the end
of March 2008. Out of these, 3281012 are DSL based; 376200 Cable Modem; 107128 Ethernet LAN;
50739 Fibre; 39051 Radio customers; Leased Line 16494 and 3555 Others.
Value Added Services
Public Mobile Radio Trunk Service (PMRTS):
The subscriber base of PMRTS increased from 34825 in December, 2007 to 36240 in March, 2008,
registering a growth rate of 4.06%.
VSAT Services:
In JFM08, there was an addition of 13986 new subscribers. The total number of subscribers increased
from 67409 in OND07 to 81395 in JFM08, registering a growth of 20.75% as against the growth rate of
3.15% for the quarter OND07.
OUTLOOK FOR THE SECTOR

Going by the number of mobile phone subscribers, India has become the world’s fastest growing region.
With almost 5-6m subscribers added every month, the country is witnessing exciting times in the telecom
industry. This growth has outpaced predictions of reaching 100m by 2007 and 200m by 2010. Now the
estimate is 500m subscribers by 2010. The mobile population is expected to hover between 325m to
350m by end of 2008.

Additional spectrum to service providers

India is on the brink of full-fledged rollout of 3G and WiMAX services across the country. The regulators
and the government are in deep discussions on spectrum allocations. It’s decided to have Additional
spectrum to be allocated to service providers, based on their existing subscriber base. This will provide
the foundation for next generation mobile services in the country. However, as TRAI proposing to hike
spectrum charges from 4% to 5% of the revenues generated by the service providers, mobile operators
may have to shell out a higher percentage of their annual revenues towards spectrum charges.
Service providers need to improve rural penetration

Out of the total population of about 1.136 billion in India, only about 28% live in urban areas and the rest
72% live in rural areas. But however, only about 2% (16m) of the rural population has access to mobile
phones. It is a high time for the companies to invest in these rural areas, too. Driven by a significant
addition in rural telephony, overall population coverage in the country is expected to increase from 65%
to 80%.
Low ARPU: cause for concern

Despite the high penetration in urban areas, the ARPU is quite low, one of the lowest in the world and
continues to fall steadily. For operators, this is offset by increased subscription. However, profit margins
are decreasing and to stay in good shape operators will have to leverage on larger economies of scale. One
trend seen in this direction is the sharing of towers and base station location sites among operators.
Mobile commerce to become the next big thing

Mobile commerce is expected to penetrate further. The urban customers will of course be introduced to
new services in this area. But its impact will be felt most distinctly in the rural areas, where it will help
strengthen the rural microfinance projects. Money transfer over the mobile and m-commerce are tipped
to be the next best thing to happen after SMS and Hello Tunes. This would enable millions of Indians
working abroad to easily transfer money to their families back in India via their mobile phones.
Mobile number portability to become a reality soon

Indian mobile users will soon have the option to switch their service providers without changing their
mobile numbers. Number portability is a very important and effective tool for ensuring competition in
the telecom services market. Implementation of mobile number portability would motivate and stimulate
the service providers to constantly endeavour to further improve their quality of service in order to retain
existing customers and attain new subscribers.

INTER-FIRM COMPARISON
Telecom Equipment Manufacturers
Operational Performance
Telecom equipment manufacturers have
3800 Operational Performance: Telecom200
shown mixed results in AMJ08 compared
Equipment Manufacturers
with AMJ07. Avaya Global Connect and
3300 150
Sterlite have shown growth in sales,
whereas HFCL sales declined by more AMJ 07(LHS)
2800 100
AMJ 08(LHS)
than half in AMJ08 compared with
Rs in m
% Growth(RHS)
AMJ07. Sterlite sales grew by 146.54% to 2300 50
Rs2,395.60m in AMJ08 compared with
%
Rs971.70m in AMJ07. Avaya also saw 1800 0
jump in sales by 22.17% to Rs1,391.51m in
1300 -50
AMJ08 compared with Rs1,139m in
AMJ07. HFCL sales declined by 50.48% to 800 -100
Rs1,107.70m in AMJ08 compared with Avaya Global HFC L Sterilite Optical
Rs2,236.80m in AMJ07 C onnect
Source: BSE India, Cygnus Research

Financial Performance
Avaya and Sterlite gain; HFCL losses margins in AMJ08
3000 Financial performance: AMJ08 vs AMJ 07 30
Net sales(RHS) 25
2500 NPM(LHS) 20
OPM(LHS) 15
2000
10
Rs in m
1500 5
%
0
1000
-5
-10
500
-15
0 -20
AMJ07 AMJ08 AMJ07 AMJ08 AMJ07 AMJ08
Avaya global connect HFC L Sterilite optical
In AMJ08, Avaya and Sterlite saw rise in profit margins against AMJ07. Avaya’s OPM and NPM jumped
from 1.1% and -0.5% in AMJ07 to 11.9% and 6.7% in AMJ08. Similar trend was witnessed by Sterlite as
its OPM and NPM jumped to 13% and 5.3% in AMJ08. HFCL’s margins declined to 5.5% and -14.3% in
AMJ08 compared with 15.6% and 8.2% in AMJ07 amid sharp decline in its sales; expenses remained high.
Telecom Service Providers
Operational Performance
Reliance is fast catching up with Airtel in terms of sales and subscriber base. Reliance is present in both
GSM and CDMA platform, which is increasing its subscriber growth. Reliance saw its sales rise
tremendously in AMJ08 compared with the marginal sales in AMJ07. In terms of sales value, Airtel
topped the chart with Rs56.12 billion in AMJ08, with growth of 52.39% compared with AMJ07. MTNL is
the only company, which saw decline in sales from Rs12.78 billion in AMJ07 to Rs11.96 billion in AMJ08.
Tata group-owned Tata Teleservices and Tata Communications saw significant increase in their sales in
AMJ08 by 21.47% and 9.10% compared with AMJ07.

Reliance catching up with Airtel
Operational Performance: Telecom Service Providers

60 18000
50 AMJ 07(LHS)
AMJ 08(LHS) 12000

40
Rs in billion
30
6000
20
%
10
0
0
-10 -6000
Bharti MTNL Reliance Tata Teleservices Tata
C ommunications
Financial Performance
60 Financial performance AMJ08 vs AMJ 07 90

Net sales(RHS) 70
50
NPM(LHS)
50
40 OPM(LHS)
Rs in bn
30
30
%
10
20
-10
10 -30
0 -50
AMJ07
AMJ08
AMJ07
AMJ08
AMJ07
AMJ08
AMJ07
AMJ08
AMJ07
AMJ08
Bharti MTNL Reliance Tata Teleservices Tata
C ommunications
Margins improved slightly

Bharti Airtel, Tata Teleservices and Tata Communications saw their margins improving slightly amid
improvement in sales. Airtel saw its OPM and NPM improving to 41.3% and 25.2% in AMJ08 from
38.3% and 22.1% in AMJ07. Tata Teleservices saw its OPM improving to 21.6% in AMJ08 compared
with 17.9% in AMJ07. Tata Communication’s NPM improved from 9.8% in AMJ07 to 10.3% in AMJ08.
Cost Structure
Telecom Services Providers
The industry’s average of cost to sales percentage was 80.51% in AMJ08. Airtel and Reliance
Communication performed much better than industry with cost to sales percentage of 76.24% and
74.09% in AMJ08. While Airtel’s cost percentage declined from 78.38% in AMJ07, Reliance saw increase
in percentage from 63.09% in AMJ07. MTNL’s cost to sales percentage remained high at 97.78% in
AMJ08 and 96.28% in AMJ07.
Tata Teleservices’ cost percentage declined from 134.91% in AMJ07 to 111.10% in AMJ08 and still
remained higher than industry average of 80.51% in AMJ08. Tata Communications saw marginal decrease
in its cost from 86.69% in AMJ07 to 85.77% in AMJ08

Bharti Airtel MTNL Reliance Industry

AMJ AMJ AMJ AMJ AMJ AMJ AMJ AMJ
2008 2007 2008 2007 2008 2007 2008 2007
Staff cost 5.97 6.40 35.34 35.13 5.65 1.00 9.00 12.15
License Fee 15.98 15.31 44.33 43.77 33.59 1.00 13.74 7.04
Network Opex 11.03 11.38 0.00 0.00 7.68 0.00 13.05 16.20
Interconnection Charges 15.89 17.72 0.00 0.00 0.00 0.00 8.70 11.92
Administrative exp 7.89 8.96 16.94 17.14 8.20 22.23 9.64 9.61
Sales & Marketing exp 7.35 6.85 0.00 0.00 10.19 0.00 7.12 5.06
Other exp 0.54 1.52 16.84 16.72 0.00 9.00 2.03 6.22
Depreciation 13.38 12.25 14.76 13.27 12.87 8.92 13.46 13.67
Interest -4.63 1.78 0.06 0.11 0.34 0.00 -1.93 1.83
Tax 8.81 2.60 4.84 5.27 1.23 22.75 5.71 3.40
Total 76.24 78.38 97.78 96.28 74.09 63.90 80.51 87.11
Tata Teleservices Tata Communications Industry

AMJ 2008 AMJ 2007 AMJ 2008 AMJ 2007 AMJ 2008 AMJ 2007
Staff cost 5.78 4.15 6.61 6.39 9.00 12.15
License Fee 5.78 4.15 0.00 0.00 13.74 7.04
Network Opex 15.28 16.69 56.03 58.01 13.05 16.20
Interconnection 26.39 27.93 0.00 0.00 8.70 11.92
Administrative exp 12.30 13.78 14.28 0.00 9.64 9.61
Marketing exp 18.60 19.55 0.00 0.00 7.12 5.06
Other exp 0.00 0.00 0.00 12.55 2.03 6.22
Depreciation 26.34 38.37 9.21 11.36 13.46 13.67
Interest 6.36 14.35 0.19 0.11 -1.93 1.83
Tax 0.05 0.09 6.05 4.65 5.71 3.40
Total 111.10 134.91 85.77 86.69 80.51 87.11
Avaya HFCL Sterlite Industry

AMJ AMJ AMJ AMJ AMJ AMJ AMJ AMJ
2008 2007 2008 2007 2008 2007 2008 2007
Stock in trade 15.00 3.00 -6.00 0.00 -16.00 4.00 -4.69 1.63
Raw materials 3.72 10.54 87.03 77.57 81.37 55.95 60.58 55.17
Traded items 41.06 51.62 0.00 0.00 0.00 0.00 11.67 13.53
Staff cost 12.39 15.72 5.15 2.59 4.03 5.56 6.66 6.69
Other expenditure 15.63 18.17 7.83 4.16 17.59 26.00 14.82 12.71
Depreciation 1.79 2.19 5.84 3.15 3.47 6.39 3.53 3.62
Interest -0.86 -0.70 14.05 4.36 3.69 2.05 4.74 2.52
Tax 4.73 0.09 0.04 0.09 1.54 0.06 2.11 0.08
Total 88.14 98.95 94.48 84.42 87.05 91.17 89.04 89.73

Telecom Equipment Manufacturers cost to sales percentage remained high but reduced marginally from
89.73% in AMJ07 to 89.04% in AMJ08. Avaya’s cost percentage declined by 11% in AMJ08 compared
with AMJ08 of 99%. Sterlite’s cost to sales percentage reduced from 91% in AMJ07 to 87% in AMJ08.
HFCL, on the other hand, saw its cost to sales percentage climbing to 94% in AMJ08 compared with
84% in AMJ07 due to sharp fall in sales.
STOCK SCAN
120
Relative Market Cap: AMJ 08
115
110
105
100
95
90
85 Sensex Bharti Reliance MTNL
80
3-Jun
6-Jun
9-Jun
12-Jun
15-Jun
18-Jun
21-Jun
24-Jun
27-Jun
30-Jun
1-Apr
4-Apr
7-Apr
10-Apr
13-Apr
16-Apr
19-Apr
22-Apr
25-Apr
28-Apr
1-May
4-May
7-May
10-May
13-May
16-May
19-May
22-May
25-May
28-May
31-May
150
140
130
120
110
100
90 Sensex Avaya HFC L Sterilite

80
3-Jun
6-Jun
9-Jun
12-Jun
15-Jun
18-Jun
21-Jun
24-Jun
27-Jun
30-Jun
1-Apr
4-Apr
7-Apr
10-Apr
13-Apr
16-Apr
19-Apr
22-Apr
25-Apr
28-Apr
1-May
4-May
7-May
10-May
13-May
16-May
19-May
22-May
25-May
28-May
31-May
140
130
120
110
100
90
80
70 Sensex Tata tele Tata C ommunications
60
3-Jun
6-Jun
9-Jun
12-Jun
15-Jun
18-Jun
21-Jun
24-Jun
27-Jun
30-Jun
1-Apr
4-Apr
7-Apr
10-Apr
13-Apr
16-Apr
19-Apr
22-Apr
25-Apr
28-Apr
1-May
4-May
7-May
10-May
13-May
16-May
19-May
22-May
25-May
28-May
31-May

BSE Sensex
The 30-share BSE Sensex witnessed a drop of 13.85%
during AMJ08. The Sensex lost around 2,165.02 points Stock Performance in AMJ08
and fell from 15,626.62 points on April 01, 2008 to Return P/E high
13,461.60 points on June 30, 2008. Uncertainty in global Bharti -10.32 46.13
markets, soaring crude oil prices and high inflation
Avaya -20.24 6.99
created negative sentiments in the market.
HFCL -24.69 9.69
Telecom Service Providers MTNL -9.62 10.90
Reliance -15.06 53.00
Despite good sales, service providers were net losers Sterlite technologies 10.74 32.77
in AMJ08
All the service providers performed poorly in AMJ08 Tata Teleservices -15.11 0.00
quarter in stock market, with decline in market cap. Most Tata communication -30.16 38.05
of theses companies moved along the BSE Sensex in Source: BSE India, Anandrathi; Cygnus Research
AMJ08, but Tata Communications was the major loser
with 30.16% loss in returns. In April and May, Bharti performed well but its share price declined in June,
leading to lower relative market cap. MTNL stock moved along with BSE Sensex in AMJ08. Reliance and
Tata Teleservices saw around 15% decline in their market cap in AMJ08.

Like service providers, telecom equipment manufacturers also remained losers at the stock market with
erosion of market cap in AMJ08. Avaya and HFCL saw decline in relative market cap by 20.24% and
24.69% in AMJ08. Sterlite’s share prices saw surge in April and May but declined in June with positive
return of 10.74% in AMJ08.

COMPANY ANALYSIS
1. Airtel
Year End Net Sales (Rs m) PAT (Rs m) EPS (Rs) P/E ROE ROCE
March 08 (A) 257035.10 62442.00 32.92 25.10 31% 29%
March 09 (E) 369552.99 92062.30 48.53 17.02 32% 32%
March 10 (E) 497168.83 123356.53 65.03 17.02 43% 32%
Rs m
Industry
Quarter Full Year Ended
Aggregate
AMJ07 AMJ08 JAS08 AMJ 08 March 08 March 09 March 10
Y/E March
(A) (E) (E) (E) (A) (E) (E)
Net Sales 56116.20 77606.12 88692.70 123436.52 257035.10 369552.99 497168.83
Change 52% 38% 46% 25% 44% 44% 35%
EBITDA 23188.80 32594.57 37250.93 43737.79 105010.30 155212.26 208810.91
Change 65% 47% 64% 32% 48% 48% 35%
Depreciation 23188.80 32594.57 37250.93 16530.13 32806.30 46933.23 63140.44
Interest 16477.90 23437.05 26785.20 (811.27) 4837.10 6651.95 9446.21
Other Income 798.30 698.46 798.2343 2123.46 2358.60 3325.98 4474.52
PBT 19075.10 22040.14 25188.73 30142.39 69725.50 104953.05 140698.78
TAX 4945.90 4809.43 2994.12 6293.93 7283.50 12890.75 17342.25
Tax Rate 26% 22% 12% 21% 10% 12% 12%
PAT 14129.20 17230.71 22194.61 23848.46 62442.00 92062.30 123356.53
Change 73% 22% 37% 34% 55% 47% 34%
Source: Cygnus Research
Note: 1. All calculations are on the basis of trailing method
2. PBT and PAT are projected figures
3. EPS is projected on the basis of profit
In FY08, Bharti’s sales jumped by 44% compared with FY07 and are expected to grow strongly in
coming years. Same trend can also be witnessed in PAT, which increased by 55% in FY08 compared with
FY07. Sales in AMJ08 is expected to have increased by 38% to Rs77,606.12m from Rs56,116.20m in
AMJ07. In the near future, Airtel is expected to add subscribers at the rate of more than 6m customers
every quarter.

2. MTNL
March 08 (A) 47287.51 5073.23 8.05 11.99 4% 7%
March 09 (E) 46671.01 4720.42 7.49 12.89 4% 7%
March 10 (E) 46436.43 4685.54 7.44 12.89 4% 7%
Rs m
Industry
Aggregate
AMJ07 AMJ08 JAS08 AMJ08 March 08 March 09 March 10
Y/E March
(A) (E) (E) (E) (A) (E) (E)
Net Sales 11956.87 11771.65 11799.59 123436.52 47287.51 46671.01 46436.43
Change -6% -2% -2% 25% -4% -1% -1%
EBITDA 2617.09 2549.51 1732.09 43737.79 8257.32 8245.42 8203.98
Change -6% -4% -9% 32% -7% 0% -1%
Depreciation 1765.08 1890.00 1943.81 16530.13 7071.82 7497.25 8203.98
Interest 7.29 6.00 3.00 (811.27) 29.61 28.00 28.40
Other Income 843.49 907.82 1536.315 2123.46 6790.91 6983.25 7874.57
PBT 1688.21 1561.33 1321.59 30142.39 7946.80 7703.42 7846.17
TAX 579.17 162.00 932.00 6293.93 2873.57 2983.00 3160.63
Tax Rate 34% 10% 71% 21% 36% 39% 40%
PAT 1109.04 1399.33 389.59 23848.46 5073.23 4720.42 4685.54
Change -16% 26% -59% 34% -4% -7% -1%
In FY08, MTNL’s sales declined by 4% compared with FY07 and is expected to remain stagnant or
decline marginally because private players are giving stiff competition to MTNL, which is a state-owned
company. Same trend can be witnessed in PAT, with a decline of 4% in FY08 compared with FY07. Sales
in AMJ08 is expected to have fallen by 2% to Rs11,771.65m from Rs11,956.87m in AMJ07.

3. Reliance
March 08 (A) 134161.90 25864.50 12.53 40.56 253% 7%
March 09 (E) 158292.73 34962.03 16.94 30.00 342% 10%
March 10 (E) 196096.93 43512.52 21.08 30.00 426% 12%
Rs m
Industry
Aggregate
Y/E March
(A) (E) (E) (E) (A) (E) (E)
Net Sales 32289.30 36453.94 38458.91 123436.52 134161.90 158292.73 196096.93
Change 13945% 13% 16% 25% 49% 18% 24%
EBITDA 13026.50 14217.04 14998.97 43737.79 48824.60 63734.16 78438.77
Change 8261% 9% 21% 32% 36% 31% 23%
Depreciation 4155.30 4265.11 5399.63 16530.13 18436.60 22944.30 28237.96
Interest 109.50 1396.49 1349.09 (811.27) 4451.70 5730.46 6546.39
Other Income 7.60 23.00 37.00 2123.46 104.60 142.00 156.00
PBT 8769.30 8578.44 8287.26 30142.39 26040.90 35201.40 43810.43
TAX 396.30 58.33 56.35 6293.93 176.40 239.37 297.91
Tax Rate 5% 1% 1% 21% 1% 1% 1%
PAT 8373.00 8520.10 8230.90 23848.46 25864.50 34962.03 43512.52
Change 9809% 2% 3% 34% 30% 35% 24%
In FY08, Reliance’s sales jumped by 49% compared with FY07 and is expected to grow strongly in the
coming years. Same trend can be witnessed in PAT, with a rise of 30% in FY08 compared with FY07.
Sales in AMJ08 is expected to jump by 13% to Rs36,453.94m from Rs32,289.30m in AMJ07. In the
coming quarters, Reliance is expected to add subscribers at the rate of more than 4m customers every
quarter. Since Reliance is present in both CDMA and GSM technology, it is fast catching up with Airtel
and is second largest company after Airtel in terms of subscriber base.

4. Tata Communications
March 08 (A) 38468.50 8632.30 30.29 16.96 14% 14%
March 09 (E) 41612.23 8916.04 31.28 16.42 14% 13%
March 10 (E) 42512.23 12025.84 42.20 16.42 18% 16%
Rs m
Industry
Aggregate
Y/E March
(A) (E) (E) (E) (A) (E) (E)
Net Sales 10081.30 10689.18 9955.81 123436.52 32,883.00 41,612.23 42,512.23
Change 9% 6% 5% 25% -19% 27% 2%
EBITDA 2327.00 2463.72 1479.21 43737.79 5,996.10 12,207.04 14,834.84
Change 9% 6% 5% 32% -35% 104% 22%
Depreciation 928.90 987.00 911.00 16530.13 3,013.10 3,395.00 5,861.67
Interest 19.40 20.00 10.00 (811.27) 236.10 243.00 3,236.00
Other Income 273.20 489.00 456 2123.46 1,755.10 1,860.00 1,921.00
PBT 1651.90 1945.72 1014.21 30142.39 4,502.00 10,429.04 13,519.84
TAX 610.30 567.00 234.00 6293.93 1,455.20 1,513.00 1,256.00
Tax Rate 37% 29% 23% 21% 32% 15% 9%
PAT 1041.60 1378.72 780.21 23848.46 3,046.80 8,916.04 12,025.84
Change 14% 32% 27% 34% -39% 193% 35%
Like MTNL, Tata Communications is another company, which is facing stiff competition from likes of
Reliance in CDMA platform. In FY08, the company’s sales declined by 19% to Rs32,883m compared
with FY07. But in the coming years, the company’s sales is expected to increase steadily as it reaches out
to new customers in the rural areas. In AMJ08, the company’s sales is expected to have grown to
Rs10n689.18m, increasing by 6%.

5. Tata Teleservices
March 08 (A) 17071.90 -1257.40 -0.69 -40.45 -3% 1%
March 09 (E) 20144.84 587.87 0.32 86.52 3% 6%
March 10 (E) 23368.02 2585.40 1.43 86.52 12% 10%
Rs m
Industry
Aggregate
March March
AMJ07 AMJ08 JAS08 March 10
Y/E March AMJ08 (E) 08 09
(A) (E) (E) (E)
(A) (E)
Net Sales 3933.40 4641.41 4936.77 123436.52 17071.90 20144.84 23368.02
Change 21% 18% 18% 25% 21% 18% 16%
EBITDA 851.50 1253.18 1382.29 43737.79 4031.40 5753.58 7608.88
Change 47% 47% 43% 32% 40% 43% 32%
Depreciation 1036.00 1002.16 1008.16 16530.13 4393.50 4250.00 7608.88
Interest 250.00 394.52 419.63 (811.27) 1710.10 1712.31 4353.60
Other Income 152.20 185.66 197.47064 2123.46 824.10 805.79 934.72
PBT -282.30 42.16 151.98 30142.39 -1248.10 597.07 2601.00
TAX 2.00 2.00 2.00 6293.93 9.30 9.20 15.60
Tax Rate -1% 5% 1% 21% -1% 2% 1%
PAT -284.30 40.16 149.98 23848.46 -1257.40 587.87 2585.40
Change NA NA NA 34% NA NA 340%
Tata Teleservices is running into losses since last few years but is expected to show profit in FY09
onwards. In FY08, the company’s sales jumped by 21% to Rs17,071.90m compared with FY07. The PAT
of the company remained in loss at Rs1,257m in FY08. In the AMJ08 quarter, the company’s sales is
expected to have jumped by 18% to Rs4,641m compared to AMJ07.

6. Avaya Global Connect
March 08 (A) 5520.67 280.05 19.72 8.39 197% 21%
March 09 (E) 5765.00 396.62 27.93 5.92 279% 24%
March 10 (E) 5909.00 501.58 35.32 5.92 352% 25%
Rs m
Industry
Aggregate
AMJ07 AMJ08 JAS08 March 08 March 09 March 10
Y/E March AMJ08 (E)
(A) (E) (E) (A) (E) (E)
Net Sales 1391.51 1453.09 1393.10 123436.52 5520.67 5765.00 5909.00
Change 22% 4% 4% 25% -2% 4% 2%
EBITDA 24.92 25.00 0.00 43737.79 462.54 630.12 709.08
Change 0% 0% 8% 32% -44% 36% 13%
Depreciation 146.81 203.91 224.98 16530.13 105.47 108.00 108.00
Interest 158.74 208.91 231.98 (811.27) -42.64 -35.00 -44.00
Other Income 6.77 0.00 0.00 2123.46 60.77 0.00 0.00
PBT 59.00 32.00 62.00 30142.39 460.48 557.12 645.08
TAX 99.74 176.91 169.98 6293.93 180.44 160.50 143.50
Tax Rate 169% 553% 274% 21% 39% 29% 22%
PAT -40.74 -144.91 -107.98 23848.46 280.05 396.62 501.58
Change NA NA NA 34% -56% 42% 26%
Avaya Global connect has shown marginal decline in its sales in FY08 by 2% to Rs5,520.67m compared
with FY07. In AMJ08, the company’s sales is expected to have increased to Rs1,453.09m compared with
Rs1,391.51m of AMJ07 at the growth of 4%. The 3G technology and the arrival of foreign players like
Vodafone are likely to spur the growth of telecom equipment in the country.

7. HFCL
March 08 (A) 3495.92 -1505.50 -3.40 -5.57 -38% -1%
March 09 (E) 3677.00 -1118.27 -2.53 -7.50 -28% -1%
March 10 (E) 3924.00 -869.38 -1.96 -7.50 -22% -1%
Rs m
Industry
Aggregate
Y/E March AMJ08 (E)
(A) (E) (E) (A) (E) (E)
Net Sales 1107.70 1095.00 900.00 123436.52 3495.92 3677.00 3924.00
Change -50% -1% -1% 25% -69% 5% 7%
EBITDA 61.10 56.40 47.00 43737.79 -552.16 -342.27 -110.88
Change -8% 0% 4% 32% -127% NA NA
Depreciation 64.70 65.00 68.00 16530.13 271.62 272.00 286.00
Interest 155.60 123.00 154.00 (811.27) 693.73 518.00 485.00
Other Income 1.60 3.00 5.00 2123.46 16.46 19.00 22.00
PBT -157.60 -128.60 -170.00 30142.39 -1501.05 -1113.27 -859.88
TAX 0.40 2.00 1.00 6293.93 4.45 5.00 9.50
Tax Rate 0% -2% -1% 21% 0% 0% -1%
PAT -158.00 -130.60 -171.00 23848.46 -1505.50 -1118.27 -869.38
Change NA NA NA 34% NA NA NA
HFCL’s sales have declined tremendously by 69% in FY08 to Rs3,498.92m compared with FY07. In
AMJ08, the company’s sales is expected to have declined by 1% to Rs1,095m compared with AMJ07. But
in the coming years, the company’s sales is expected to increase steadily with the growth in domestic
requirement of telecom equipment by service providers.

8. Sterlite
March 08 (A) 16857.90 1007.20 16.35 9.96 19% 14%
March 09 (E) 20854.00 1639.63 26.62 6.12 25% 17%
March 10 (E) 24375.00 1980.13 32.15 6.12 25% 20%
Rs m
Industry
Aggregate
Y/E March AMJ08 (E)
(A) (E) (E) (A) (E) (E)
Net Sales 2395.60 2963.47 4955.36 123436.52 16857.90 20854.00 24375.00
Change 147% 24% 24% 25% 43% 24% 17%
EBITDA 83.20 97.00 0.34 43737.79 2043.40 2815.29 3290.63
Change 34% 17% 19% 32% 84% 38% 17%
Depreciation 252.00 315.07 565.31 16530.13 371.70 414.00 427.00
Interest 163.50 219.07 476.31 (811.27) 408.40 449.00 482.00
Other Income 24.90 12.00 0.34 2123.46 41.10 44.34 45.50
PBT 163.50 219.07 476.31 30142.39 1304.40 1996.63 2427.13
TAX 161.90 196.07 444.31 6293.93 297.20 357.00 447.00
Tax Rate 99% 90% 93% 21% 23% 18% 18%
PAT 1.60 23.00 32.00 23848.46 1007.20 1639.63 1980.13
Change 281% 46% 30% 34% 82% 63% 21%
Sterlite is the only company among the equipment manufacturers under review to show strong growth in
FY08 compared with FY07. The company’s sales jumped by 43% to Rs16,857.90m in FY08 compared
with FY07. In AMJ08, sales of the company is expected to have increased by 24% compared with AMJ07
to reach Rs2,963.47m. In the coming years, the company is expected to achieve high sales targets.

SOURCES & METHODS FOR COMPANY PROJECTIONS

Sources
¾ Company annual reports
¾ Press releases
¾ BSE India
¾ Research reports related to Economy, Industry and Company
Methods
¾ Understanding companies’ product services
¾ Understanding industry and economic indicators and general economic scenario
¾ Understanding the dynamics between the companies and the industry in relation to demand and
supply, technology, regulation, inflation, etc
¾ Understanding recent strategies and initiatives taken by companies such as product launches,
capacity additions and M&As
¾ Making revenue projections based on the expected business strategies and financial analysis
¾ Validating the financial projections of the company with the overall business strategy
¾ Calculating the cost structure on the basis of sales and past and present trends in the industry
¾ Analysing quarterly growth rates and growth rates of last 8 quarters
The cut-off date for AMJ quarter results is June 20, 2008. Quarterly performance analysis of
companies announcing their results after this date is based on Cygnus estimates.

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INDUSTRY ANALYSIS ............................................................................................................4

OUTLOOK FOR THE SECTOR .............................................................................................7

STOCK SCAN .........................................................................................................................12

COMPANY ANALYSIS ..........................................................................................................14

SOURCES & METHODS FOR COMPANY PROJECTIONS...............................................22

© Cygnus Business Consulting & Research Pvt. Ltd. 2008 2

© Cygnus Business Consulting & Research Pvt. Ltd. 2008 3

Source: BSE India; Cygnus Research

© Cygnus Business Consulting & Research Pvt. Ltd. 2008 4

40 AMJ 2007 AMJ 2008

20 Cost Structure-Service providers

Source: BSE India; Cygnus Research

© Cygnus Business Consulting & Research Pvt. Ltd. 2008 5

The total subscriber base of Wireline BPL

Other Telephone services Source: TRAI; Cygnus Research

Public Call Offices

Village Public Telephones

© Cygnus Business Consulting & Research Pvt. Ltd. 2008 6

the JFM08. All the five private operators

Internet services BSNL

Leased Line Connectivity

Broadband Connectivity (>=256 Kbps):

Value Added Services

Public Mobile Radio Trunk Service (PMRTS):

OUTLOOK FOR THE SECTOR

© Cygnus Business Consulting & Research Pvt. Ltd. 2008 7

Additional spectrum to service providers

Service providers need to improve rural penetration

Low ARPU: cause for concern

Mobile commerce to become the next big thing

Mobile number portability to become a reality soon

© Cygnus Business Consulting & Research Pvt. Ltd. 2008 8

Source: BSE India, Cygnus Research

Source: BSE India, Cygnus Research

Telecom Service Providers

© Cygnus Business Consulting & Research Pvt. Ltd. 2008 9

Reliance catching up with Airtel

Operational Performance: Telecom Service Providers

AMJ 08(LHS) 12000

Source: BSE India, Cygnus Research

60 Financial performance AMJ08 vs AMJ 07 90

Source: BSE India, Cygnus Research

Margins improved slightly

© Cygnus Business Consulting & Research Pvt. Ltd. 2008 10

Bharti Airtel MTNL Reliance Industry

Tata Teleservices Tata Communications Industry

Telecom Equipment Manufacturers

Avaya HFCL Sterlite Industry

© Cygnus Business Consulting & Research Pvt. Ltd. 2008 11

90 Sensex Avaya HFC L Sterilite

Source: BSE India; Cygnus Research

© Cygnus Business Consulting & Research Pvt. Ltd. 2008 12

Telecom Equipment Manufacturers

© Cygnus Business Consulting & Research Pvt. Ltd. 2008 13

© Cygnus Business Consulting & Research Pvt. Ltd. 2008 14

© Cygnus Business Consulting & Research Pvt. Ltd. 2008 15

© Cygnus Business Consulting & Research Pvt. Ltd. 2008 16

© Cygnus Business Consulting & Research Pvt. Ltd. 2008 17

© Cygnus Business Consulting & Research Pvt. Ltd. 2008 18

6. Avaya Global Connect

© Cygnus Business Consulting & Research Pvt. Ltd. 2008 19