The bullish view on some of these front-line telecom stocks is based on an increase in traffic growth, higher voice average revenue per minute (ARPMs) and robust data volume growth factors that will help generate strong
cash flows in the coming quarters.
Overall numbers are significantly below the worst-case assumption... After the recent price corrections, we find recent valuations attractive and do not see substantial changes to long-term drivers, said Ambit Capital in a research note.
In the third successive telecom auction in India that concluded late on Thursday, the 900-MHz spectrum was auctioned for R23,590 crore (85% higher than the reserve price) and the 1,800-MHz spectrum garnered R37,570 crore (23% higher than the reserve price), aggregating R61,160 crore. RCom shares ended at R121.3, up R2.35 or 1.98%, while Idea settled at R132.50 and Bharti Airtel at R305.50. Telecom tower infrastructure company, Bharti Infratel, ended at R172, up R3.65, or 2.17%
According to US-based financial services firm Morgan Stanley, 2014 is expected to be a landmark year for the Indian telecom industry after the auctions. We cite two forces: The return of growth in Ebitda for the industry due to higher voice ARPM as well as strong data volume growth, and auction of spectrum for both renewal and fresh purchases should reduce uncertainty relating to regulations stated the Morgan Stanley note.
Analysts said balance sheets will be under pressure in the near term. Even so, the revenue market share for the big-four will incrementally increase and data volume will continue to grow 15-20% sequentially.
We see Bharti leading the data growth story over the next five years and stays our top buy, stated the Ambit research note. The Sunil Bharti Mittal-promoted firm said it will roll out pan-India 4G network using the 1,800 MHz spectrum.
Idea was the only other company to win the 900-MHz spectrum, which is capable of 3G communications, in Delhi. Anil Ambani's Reliance Communications won just one circle of 1,800 MHz in Mumbai. Vodafone Group and Bharti Airtel won critical wireless telecom spectrum in metros like Delhi and Mumbai and several other cities in an intensely fought 10-day auction.
Analysts said they were positively surprised by Reliance Jio Infocomm's (RJio) participation in the auctions, but its impact on existing players is seen to be limited. A comprehensive voice business is an imperative for RJio to pose any credible threat to the incumbents. There is no denying that RJio has the potential to emerge as a credible competitor (due to its strong balance sheet); we do not expect a repeat of the hyper-competitive environment witnessed earlier, given that spectrum is no longer free and discounting has not worked for challengers in the past, Macquarie Capital Securities said in its note.
Mukesh Ambani's RJio, which surprised everyone by entering the fray despite owning pan-India 4G spectrum, bid aggressively for both bands of airwaves on offer the premium 900 MHz and the not-so-efficient 1,800 MHz, but choose spectrum only in the latter band in 14 out of 22 circles. Airtel, whose licences in Delhi and Kolkata were due to expire in November, won back 900 MHz in both these metros and added the same in Mumbai. It also won 1,800 MHz spectrum in 15 circles. It put in total bid worth R18,530 crore for a total of 115 MHz of spectrum in the 900-MHz and 1,800-MHz bands.