| Company | Market Cap. | Net Profit | y-o-y Net Profit | Net Sales | y-o-y Sales | EPS (basic) | Share Price |
| | (Rs cr)1 | (Rs cr)2 | Growth (%) | (Rs cr)2 | Growth (%) | (Rs) | (Rs)1 |
| Bharti Airtel | 1,52,221.27 | 6,244.20 | 54.82 | 25,703.51 | 44.45 | 32.91 | 802 |
| Reliance Communications | 89,826.45 | 2,586.45 | 7.37 | 13,416.19 | 14.42 | 12.6 | 435.2 |
| Idea Cellular | 21,241.01 | 1,044.39 | 108.02 | 6,719.99 | 53.9 | 3.96 | 80.6 |
| Tata Communications | 11,229.00 | 304.46 | -35.02 | 3,283.30 | -18.77 | 10.68 | 394 |
| MTNL | 5,814.90 | 507.32 | -21.12 | 4,728.75 | -3.95 | 8.05 | 92.3 |
1As on 18 July 2008 2FY 2008 y-o-y: Year-on-Year EPS: Earning per share
These stocks are not OLM recommendations. They are the top five companies in the sector based on market capitalisation.
Though the volatile stockmarkets have pulled down the value of telecommunication stocks, the industry continues to see strong growth with big increases in wireless subscriber base. It grew by 11.75 per cent in the last quarter of FY08 to reach 300 million users. Continuing at the same pace, industry estimates the total subscriber base of wired and wireless subscribers to cross 500 million by 2011. Likewise, the industry revenues are tracking the growth of subscriber base. Though the average revenue per user (ARPU) has been declining for the last few years, consumers are getting hooked on the value added services that now bring in a substantial portion of the overall industry revenue. In future, the value-added services would become an important revenue stream as the service providers will try to differentiate themselves in the environment of low-rate voice calls. The ongoing capital expenditure, domestic and foreign direct investment, in the industry has not moderated despite restrained economic growth. It shows the strong growth potential of the sector. Meanwhile, companies are adopting new business models to reduce the cost. Outlook Money brings in experts to comment on the trends and challenges of the sector.
FOCUS ON COVERAGE
Vetri Subramaniam Head, Equity Funds, Religare AEGON Asset Management
Industry growth. The growth of the industry has been steady. In March 2008, there were nearly 260 million wireless subscribers that, by 2011, is expected to grow to 500-550 million. The overall revenue for the industry will grow at the pace of growth in volume. The main story will be in terms of increasing coverage and penetration. The average coverage for mobile operators in India is only 50-55 per cent. Over the next few years, it should go up to 85-90 per cent. The penetration in non-metro cities should also increase.
Business structures. Lowering of the ARPUs is not a cause of concern. The important thing is to increase the minutes of usage and lower the cost per minute. Lowering cost per minute will help in lowering the prices and, therefore, help in increasing coverage and penetration. By spinning off the assets, companies should be able to share their capital expenditure burden with other companies, and thus improve their ability to provide services at lower cost. But it will have the desired effect only if the firms share the infrastructure.
Future outlook. The industry dynamics are still attractive. Companies entering now will have to think of a pan-India business. Therefore, they will require large capital. Easy liquidity scenario that prevailed earlier and helped companies raise capital might have changed, but companies having stronger financial capabilities will continue to invest.
USER BASE TO GROW
Kunal Bajaj Managing Director, BDA Connect (India)
Industry growth. We are heading to about 500 million mobile subscribers. We can easily go on to 614 million subscribers by 2013. In terms of industry revenue, the ARPU is definitely declining, but the subscriber growth is going to outpace the decline in ARPU. There will be explosive growth in the revenue. The growth will be in both wired and wireless segments. The value-added services will play a major role in the growth as the voice revenue is coming down.
Business structures. Call rates are decreasing, but the way the companies are managing their business structure is very cost effective. They are outsourcing everything that is non-core and making themselves very lean by effectively deploying their capital and ongoing operating expenses. The earnings before interest, tax and depreciation margin in India are comparable to that of global levels. This takes into account not only the low tariffs, but also one of the highest tax regimes in the world. Companies are forming new tower companies. This is helping them realise the value of their assets. Also, they are able to share the infrastructure with other companies that are reducing their operating cost.
Future outlook. The telecom sector continues to be attractive as there is a lot of scope left. The foreign direct investment slowdown hasn’t been there. Domestic companies will continue to invest to grow as they increase their pan-India presence.
BROADBAND’S NEXT
Manish Bhandari Fund Manager, ING Investment Management
Industry outlook. Telecom penetration in India at around 27 per cent is still very low. With the increase in the number of operators in the markets and better population coverage, the sector is likely to grow at a rapid pace in the future. We expect the wireless subscriber base in India to reach around 470 million by March 2010. Wireless and data segments are likely to be the growth drivers for the industry in the medium term. Broadband penetration in India is negligible at around 1 per cent only. The segment has huge growth potential and is likely to be next growth driver for the sector.
Business structure. A reduction in call rates directly impacts the profitability of the industry. While it invariably leads to increase in usage, the ARPU have shown a declining trend. We are also of a view that the value-added services, contributed around 10 per cent of industry revenue, cannot arrest the decline in the ARPU in a substantial way. Shortage of spectrum can definitely impact the growth plans of any company. However, with advent of more spectrum-efficient technologies, companies have been utilising the available spectrum in the best possible manner. This may have an impact on the cost structure of these operators, but is unlikely to have a huge impact on their growth plans.
Future outlook. There are many global players who are looking to enter the Indian market. In such a scenario, it is unlikely to see a slowdown in investments.
THE OLM TAKE
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