SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT

SECTOR ANALYSIS REPORT

ON

TELECOM SECTOR IN INDIA

BUSINESS MANAGEMENT (2017-19)

GROUP –D
COURSE INSTRUCTOR: DR. SHRIDHAR KUMAR DASH

SUBMITTED BY:
ALOKNATH PATRA- UM17317
ANKIT MATHUR – UM17260
ANKIT MISHRA – UM17321
ANKITA PANIGRAHI – UM17322
APARNA BEHERA – UM17325
SHUVAM PATRA – UM17368
SIDHANT SOURAV – UM17369
Opportunities across segments in the industry:
1. Increasing mobile subscribers:
 The number of wireless subscribers in India reached 1.178 billion, by October 2017
 Of the total 1,201.72 million subscribers as of October 2017, around 58.04 per cent
subscribers are from urban areas and the rest (41.96 per cent), from rural areas

2. Untapped rural markets:

 By October 2017, rural tele-density reached 56.94 per cent, growing from 43.05 per cent
as of March 2016
 By October 2017, rural wireless teledensity in the country increased to 56.54 per cent,
while, the urban wireless tele-density reached to 166.17 per cent during the same
period

3. Rising internet penetration:

 Internet penetration is expected to grow steadily and is likely to be bolstered by
government policy
 Number of broadband subscribers reached 340.16 million at the end of October 2017
 To encourage cash economy, Indian government announced to provide free Wi-fi to
more than 1000-gram panchayats.

4. Development of telecom infrastructure:

 TRAI has made several recommendations for the development of telecom
infrastructure, including tax benefits and recognizing telecom infrastructure as essential
infrastructure

5. Growth in MVAS and cloud computing:

 The Indian Mobile Value-added Services (MVAS) industry is expected to grow at a CAGR
of 18.3 per cent during the forecast period 2015–2020 and reach US$ 23.8 billion by
2020.
 Public cloud services in India generated US$1,316 million in 2016. Indian public cloud
services market is expected to reach US$1.9 billion by 2019.

6. Telecom equipment market:

 Telecom equipment market was estimated to be US$20 billion in FY16*
 It is anticipated to reach US$30 billion by 2020
 Under Digital India program, ‘every Indian has a smartphone by 2019’ program
implemented

7. Growing Cashless Transactions:

 In order to overcome the cash related problems being faced by people, due to
demonetization, Paytm launched a service through which consumers and merchants can
pay and receive money instantly, without an internet connection
 This has enabled non-smartphone users to go cashless
Looking at Telecom industry trends by 2020 and beyond:
For last 20 years, continuous technical transformation and information waves have driven
high growth in the telecom industry. However, with an upcoming age of saturated telecom
penetration, the industry is facing a brand-new situation. Top 6 disruptions that will drive the
most change in telecommunications by 2020 are:

1. Integration with content service providers: Being connected continues to become

cheaper. Connectivity is capturing a smaller proportion of the information value chain
while content, service, and product deliverers capture more. By 2020, it is likely that one
or more major telecom companies will be acquired by a content company.

2. IoT: The next major trend that will impact is the explosion of connected devices. This
will add billions of new connected data sources globally by 2020. The upswing of all of
these devices will be an astronomical growth in data volumes; we will quickly push
through exabyte volumes and enter the world of zettabytes per year.

3. Mobility: Growth of mobile connectivity is far outpacing fixed line connectivity. This
makes sense, as most growth is occurring in the developing world and amongst poorer
populations. For these people, mobile is cheaper, convenient, and more useful, even when
landline connectivity is an option.

4. Connectivity: In a population of 1.3 billion with 1.2 billion subscriber bases, the unique
subscribers wouldn’t cross 800 million or so mark. Even if fundamentally un-addressable
market comprising of infants, lower side of below poverty line and other such segments, are
taken out of the potential opportunity, there still would be around 200 million or so users
who need to be connected with a basic telecom service. That would not be even looking for
digital inclusiveness, but a pure integration on the telecom network that would facilitate
making and receiving a simple call or SMS.

5. Market Saturation: Elder population as they retire will enter retirement communities
and assisted living facilities which are fully digitized in order to be as efficient as
possible. Older population will be forced into using these technologies by the world
around them and will likely consume vastly more bandwidth than they, or their carriers,
ever imagined. As this occurs, the last remaining percentages of market penetration will
be achieved, and the market will be thoroughly saturated.

6. Security: As custodians of the networks, carriers play a pivotal role in fighting the
new threats that are emerging. Customers will begin to expect, then demand, more
proactive protection from the entire internet value chain, and carriers will be expected to
support these expectations with a range of technical and operational innovations. The
desire for greater security may be a boon for carriers, if they embrace the need.

Telcos can continue to achieve high growth through following

initiatives:
Surpassing population and developing new subscribers: The Internet of Things opens a
door to new opportunities. The “Internet of Things” describes an unprecedented blueprint for
industries such as telecom and IT. It is predicted that by 2020, the ratio between machine type
communications to human type communications will reach 30:1, which will allow operators
to extend their subscriber base from 6 billion people to 50 billion or even over a trillion
machines and objects, and thus opens a new door and serves as the basis for “surpass
population and developing new subscribers” for the telecom industry. 

Surpassing voice communications and developing new services: Mobile broadband

contributes to the industry’s rapid development. The revenue for voice services has saturated
or even gradually declined with the developments of mobile communication in the past
decade however at the same time, mobile broadband is entering a golden age of development,
bringing human society to a new height of ubiquity. With the challenges of traffic and cost
being overcome, it is predictable that mobile broadband will become the most significant
force to promote industry development. Operators can achieve sustainable growth if they
focus on developing mobile broadband services rather than voice communications. 

Surpassing the pipeline, and exploring new business model: Cloud computing brings new
opportunities. The popularity of broadband provides a basis for cloud computing. Cloud
computing appears in the form of an “information power plant”, and is overturning the
traditional business mode of software, hardware, and media. That is, users are moving from
“buying products” to “buying services”. Cloud computing will be the key for business
development for operators, to realize “extending network value by surpassing the pipeline”.  

Surpassing telecom and extending to other industries: The revolutionary experience of

home networking creates new markets. Home networking is the major battlefield for “network
convergence of telecom, TV and the Internet”. The “bi-direction and high bandwidth” features
of the telecom network have an advantage in network convergence, and provide
unprecedented strategic opportunities for operators to surpass telecom, and enter into new
industries. 

In line with these trends, Communication Service Providers are being stimulated to transform
themselves into a platform of opportunities harnessing the five digital forces— Mobility &
Pervasive Computing, Big Data and Analytics, Social Media, Cloud Computing, Artificial
Intelligence and Robotics to realign their business processes, products, and services. The
digital transformation is helping the communications service providers mitigate the challenges
of shrinking product lifecycles, customer engagement and high churn rates. 

Leading IT service providers in the market have built their Telecom service portfolios
strongly around:

 Industrialized delivery factories with great emphasis on business acumen

  Fit for purpose platforms and solutions – pre-integrated OSS/BSS/Enterprise
applications
 Digital Customer Experience transformations
 Business simplification across the products, process & systems landscape
 Strong alliance and go to market partnership with leading Telco product vendors
(Amdocs, Ericsson, Oracle, Netcracker to name a few leading product vendors)

Outcome of the analysis and comparison with market analysis:

After a thorough analysis of the industry and the major players involved, we predicted
whether it was wise to buy/sell/hold the shares for the given companies and then compare
with the predictions that are available on web.

Company Money Contol Motilal Oswal Our Analysis

Bharti Airtel Hold Buy Hold
Idea Cellular Buy Buy Buy
Bharti Infratel Sell Hold Buy
TATA Communication No Prediction Buy Hold
Reliance Communication Buy No Prediction No Prediction
MTNL No Prediction No Prediction Hold
TATA Teleservice Buy No Prediction No Prediction

SAPM-D.xlsx

Other Factors Considered:

 IDEA shares are available at a very lucrative price
 IDEA’s tangible assets have increased thrice than previous
 IDEA’s market share is forecasted to gain a sudden boost after its merger with Vodafone
 Airtel is the second largest company in the sector and is expected to grow even after the
advent of Reliance JIO

Recommendations:
As the sector is not doing well now, it is advised not to invest in this sector, given a short term
investment scenario. For a long term investment purpose, investments in companies like IDEA
Cellular and Bharti Airtel may be considered.