Report

On
Equity Research
Telecom Service
Providers

By
Abhishek Ghosh
BIMTECH, BHUBANESWAR

Dated: 4th June, 2015

Contents
A. Fundamental Analysis
i. Factors Affecting Stock Movements
a.Bharti Airtel
b.Idea Cellular
c. MTNL
d.Reliance Communication
e.Tata Communication
f. Tata Teleservices
ii. Table: Fundamental Analysis
overview
iii. Why is it necessary to know the
factors affecting the aforesaid stock
movement in the capital markets?
iv. Present Condition of the Stocks

B. Technical Analysis
i. Movements Estimating Discounting
Rates with Beta Analysis
ii. Charts
a.Estimated Discounted Rates
b.Bottom-Up Beta
c. Debt-Earnings Ratio
d.Comparative Chart of Stocks
of
Telecom Service Providers &
SENSEX & Analysis
e.Sensex Retreat

Fundamental Analysis

Factors Affecting Stock

Movements
Bharti Airtel

Net profits dropped by 41% from US$470 million in 2009 to US$291 million
2010 due to a US$188 million increase in radio spectrum charges in India
and an increase of US$106 million in debt interest
On 18 October 2013, Airtel announced that it had acquired 100 percent
equity shares of Wireless Business Services Private Limited for an
undisclosed sum, making it a wholly owned subsidiary in the initial Airtel
had stakes 0f 49% which gave the company a 4G presence in the 18
circles, later to 51% stake and finally 100%.
In December 2014, Airtel changed its service terms for 2G and 3G data
packs with a charge on usages with a few offers some with a validity of 28
days. The TRAI chief Rahul Khullar said that Airtel cannot be held
responsible for violating net neutrality because India has no regulation
that demands net neutrality. Faced criticism on social networking sites like
Facebook, Twitter and Reddit and later on 29 December 2014, it was
announced that they would not be implementing planned changes,
pointing out that there were reports that TRAI would be soon releasing a
consultation paper on the issue.
Approached the global debt market on Wednesday to raise up to $1 billion
in a 10-year bond sale programme.
The heavily indebted company had hit the forex debt market thrice raising
more than $2.5 billion.
The company had posted a 30.5 per cent rise in net profit at Rs 1,255
crore for the March quarter driven by data revenue. But its Africa business
continued to bleed with increasing losses and declining revenue the loss
increased to Rs 1,138 crore from Rs 645 crore in the same quarter last
year, while for FY15, losses stood at Rs 3,548 crore, against Rs 1,855 crore
for FY14.
On May 16, the company had launched 4G trials in the city and had
offered a complimentary upgrade for its customers.
The company has also launched a new partnership with Flipkart and
Motorola under which it will offer Rs. 500 cashback on the Moto E 4G
purchased from Flipkart.
The Tanzanian government has reached a deal to buy back a 35% stake of
the state-owned Tanzanian Telecommunications Company Limited (TTCL)
from Indias mobile operator Bharti-Airtel in a transaction worth $7 million.

The parent company of Airtel Nigeria, Bharti Airtel of India, has secured a
financing of up to $2.5 billion from two top Chinese banks, the China
Development Bank (CDB) and Commercial Bank of China, as the company
aims to invest further in the growth of its mobile data networks.
Shares of Bharti Airtel ended the day at The stock ended the day at Rs
425.30; up 5.98%.
UK's Vodafone Group Plc on Thursday said that it has sold its holding in
Bharti Airtel, India's top telecom operator, for $200 million (Rs1,280 crore)
to Bharti Enterprises to conform with regulatory needs.
Airtel is leading the broadband wired and wireless market in India in
March 2015 with 22.19% second in wired but topped in wireless
broadband with 20.58 million subscribers.

Impacts:
Bharti Airtel declined 1-2.5 percent in SENSEX on 1 st June but gained 0.95 per
cent at the close on Wednesday. At 3.25 pm the share was trading at Rs 421.90,
as against Rs 417.95 at close on Tuesday. Now, on 3 rd June the closing price of
the shares is Rs. 421.25 up by 3.30 i.e., 0.79% increase from the closing on 21 st
May at Rs. 400. The trailing P/E of the company is at 33.02 as per the last
quarter in the report and the company is in the top of Regime of the Telecom
Service Providers. The EPS basing on trailing of 12 month time is 12.97 according
to last quarter..

Idea Cellular Ltd

Idea Cellular, Indias third-largest mobile operator, is reportedly working

on a INR78.5 billion ($1.2 billion) deal to sell its independent tower
business in which the Malaysias Axiata and American Tower Corporation
(ATC) have expressed interest in the business, which comprises 11,000
towers also Bharti Infratel is interested in the deal.
Ideas money-raising scheme comes shortly after Indias recent (and
expensive) spectrum auctions, in which Idea emerged as the biggest
spender, shelling out about INR303 billion.
Debt-laden after the expensive spectrum auctions, top domestic telcos have been
seeking fresh capital-raising plans and value-unlocking moves.
Indias largest operator, Airtel, raised $310 million in February through a
sale of shares in Bharti Infratel, with the proceeds earmarked primarily for
debt reduction. Airtel remains the majority shareholder in Bharti Infratel,
however, with a 72 per cent stake.
Aditya Birla controlled-Idea Cellular reported a strong set of numbers last
fiscal, backed primarily by data growth.
P Lakshminarayana, Chief Operating Officer (Corporate) of Idea Cellular,
was recently in Kolkata as Idea gears up to launch its own 3G service here.

In an interview to BusinessLine, he spoke about the companys

performance, growth of voice data, mobile tariff movements and 4G
services.
"The capex plan for the company during FY'16 is Rs 5,000 Rs 5,500
crore and the same goes in for network, IT and fibre laying among others,"
Idea Cellular chief corporate affairs Rajat Mukarji conveyed it on 13 th May,
2015 which will affect the share prices and will increase its trading prices.
Idea Cellular says net neutrality will raise data price to Rs 1,000-2,500 per
GB. Idea Cellular has warned that companies like itself will have to raise
data prices to 108-250 paise/MB (Rs 1,105-2,560 per GB) if government
imposes net neutrality on wireless providers.
This would require as voice call rates will fall to 7.5 paisa per minute if net
neutrality is allowed in the current situation, Idea Cellular said. Idea
Cellular said it would have to raise data prices to these levels to account
for a steep decline in voice rates.
Idea Cellular broadband market share was 14.64 percent in 4 th position.
Idea Cellular hikes mobile data rates by up to 100% in Delhi.

Impacts:
At 09:43 hrs Idea Cellular was quoting at Rs 172.85, up Re 0.55, or 0.32 percent.
It has touched an intraday high of Rs 173.25 and an intraday low of Rs 171.50.
Sudarshan Sukhani of s2analytics.com told CNBC-TV18 on 14 th May , "Giving a
short sell on Idea Cellular is almost like sacrilege. I never would have done it but
Idea has been falling consistently. It has broken support levels. As a trading call
there is more downside here. It is only a trading idea, I dont think of it as a
positional short at all but sometimes it works out." Idea Cellular emerged the top
gainer on the NSE by the close on Wednesday. At 3.40 pm it was trading at Rs.
175.20 as against Rs. 172.45 at close on Tuesday. This represented a gain of 1.59
per cent on 3rd June.
The share posted gains amidst a sell-off in the market on fears that the country
was facing its first drought in six years and RBI's cautious statement on inflation.
The BSE Sensex dropped over 430 points to fall below the 27,000 level, while the
NSE Nifty declined over 120 points to hold above the 8,100 mark.
The trailing P/E is 7.81, very low and price to books ratio 3.98 significantly higher
than Bharti Airtel.

Mahangar Telecom Nigam

Limited

It was in profit till 2008-2009, but in 2014, it had a debt of Rs 16,000 crore.
MTNL Posts Q4 Net Loss of Rs. 595 Crores Over Increased Expenditure but
its net profit stood at Rs. 9,600.34 crores in the year-ago period as the
company had an exceptional income of Rs. 10,216.05 crores.

Income from operations increased to Rs. 876.42 crores during JanuaryMarch quarter of 2014-15 fiscal against Rs. 841.73 crores in the
corresponding period of the previous year, the company said in a BSE
filing.
MTNL's total expenses increased sharply to Rs. 1,418.62 crores during the
fourth quarter of last fiscal from Rs. 759.80 crores in the same quarter in
2013-14 fiscal.
Income from operations rose slightly to Rs. 3,400.08 crores in 2014-15
from Rs. 3,391.73 crores in the previous year.
Introduced unlimited free local calling at night for its landline and
broadband customers to any network, effective from May 1.
Union minister for communications and information technology Ravi
Shankar Prasad conveyed that they have various plans revive the telecom
company from its losses.
Upgrading 1080 3G sites in Delhi and Mumbai, and 825 2G sites in Delhi
and 616 2G sites in Mumbai.
Planning to come up with Wi-Fi services in their respective cities with initial
plan of 5 mbps at prominent places for an yearly subscription of Rs 300.
Planning to supply high quality 50 to 100 Mbps broadband at home to
bring high speed services in all the buildings of Mumbai progressively
through 2.3 lakh km of fibre cables.
The target is to have a million customers through reasonable and
ambitious pricing range of 100 GB for Rs999.
Added 10,845 mobile subscribers in April, 2015. Following the addition,
companys total subscriber count stood at 34.34 lakh with a market share
of 0.48%.
State-run MTNL has said Bharti Airtel's 'zero rating plan' and RCom's
'internet.org' scheme defeat the basic concept of net neutrality and such
pacts should not be allowed as they affect economic interests of small
telecom operators. "In Airtel 'zero rating plan' and Reliance 'internet.org'
these operators have directly negotiated with the application providers.
MTNL is of the view that in any case, direct negotiations between OTT
players and TSPs should not be allowed," the telecom operator said in its
counter comments submitted to sectoral regulator TRAI.
"In any of the cases, the basic concept of net neutrality i.e. 'No
discrimination/favour for any specific OTT service/s in terms of cost and
access to subscribers' will be defeated," MTNL said.
MTNL with 1.14 million subscribers in wired broadband connection.

Impacts
On June 04, 2015, at 15:33 hrs Mahanagar Telephone Nigam was quoting at Rs
15.65, down Rs 0.05, or 0.32 percent. The 52-week high of the share was Rs
39.10 and the 52-week low was Rs 15.00. The latest book value of the company
is Rs 34.08 per share. At current value, the price-to-book value of the company
was 0.46.

Reliance Communications

Reliance Communications is pursuing multiple deleveraging options,

especially in non-core assets, which should help it lower net debt-toEBITDA ratio to almost 3.5 by March 2017, the company's management
said on 1st June asset monetising plans (tower assets) to lower the debt.
The company's plans include a potential stake sale in its tower unit, the
sale of its international business unit and real estate sales.
Reliance Communications, which posted a 46 percent jump in fourthquarter profit helped by increased data usage by subscribers, also said it
would step up installation of 3G tower sites this year to cater to the rising
data potential in India.
Invest about Rs 1,500-2,000 crore in the current fiscal to increase its data
business, a top official has said as the company is in talks with Russia's
Sistema for possible joint ventures, said its total data customer base grew
26.2 percent over last year, to 33.7 million.
Made 2.28 billion rupees in profit during the quarter ended March 31 2015,
compared with 1.56 billion rupees the same quarter last year.
The Anil Ambani-owned company, which wants to sell its entire stake in
Reliance Infratel, may settle for a 51% sale at the least and has asked for
bids from bankers including Morgan Stanley, Bank of America Merrill Lynch
and JM Financial to run the process, people familiar with the matter said.
Reliance Infratel, with some 45,000 towers and over 120,000 km of intraand inter-circle fibre, trails Indus Towers and Bharti Infratel in rankings by
number of towers.
Reliance Communications with 7.83 million subscribers in wireless
broadband service provider with a share of has 8.01 percent in the
broadband sector.

Impacts:
Rcom's high leverage and strained liquidity profile, thereby weakly positioning it
in its rating category but management has undertaken the monetisation. Share
prices dropped drastically from Rs. 138.15 on 22nd May to 58.55 on 4th June, at
14:16 pm. The fall of the share prices has been going on for the last two months,
it was around 150 in the middle of April. Its Trailing P/E is significantly very low
for an industry like Reliance as it was hugely debt ridden for the past couple of
years and the company is going through a change in its capital structure like
monetisation of tower assets to get rid of debts but it had a jump in its quarterly
profits of 46%. The Price to Book value is 0.20 lower than its competitor Bharti
Airtel and Idea Cellular.

Tata Communications

Tata Comm aims 40% growth rate in media biz through FY'18 and media
and entertainment segment has grown at CAGR of 20 percent in fiscal
2014-15
The company has undersea cables that provide internet connectivity to
more than 240 countries and territories.
Government may sell stakes in IDFC, Tata Communications via ETF route
but there are many issues to be resolved like land issues.
With increase in acceptance of managed services among enterprises and
TCLs continuous thrust on improving service quality and launching
innovative solutions, this segment is expected to report 22% CAGR over
FY14-17e. Additionally, with higher penetration of internet and increase in
use of bandwidth hungry applications, the companys network services
segment is expected to clock 12% CAGR over FY14-17e to R7,423.6 crore.
Heightened competition from VoIP players is likely to keep top line of the
companys voice business under pressure. However, managements
sharpened focus on high yielding minutes will lead to voice EBITDA margin
being stable at 8-9%. With low maintenance capex and stable margins, the
voice business is anticipated to generate FCF of R550-600 crore over
FY14-17e.
Tata Communications ties up with China Telecom Global(a video network
partnership)
It enables China Telecom Global to leverage its worldwide reach, along
with Tata Communications' Global Video Network to offer live sporting
events in China, a company release said. The partnership will cater to a
market opportunity of USD 2.57 billion, the release stated.
According to a forecast by Cisco on global mobile data traffic, mobile video
will generate more than 69 per cent of mobile data traffic by 2019

Impacts
On June 04, 2015, Tata Communications closed at Rs 406.20, down from Rs.
437.1. The 52-week high of the share was Rs 504.90 and the 52-week low was Rs
336.45 up to June but it reached at 318.1 with the period of 22-05-2014 to 22-0520214 . The company's trailing 12-month (TTM) EPS was at Rs 22.36 per share
as per the quarter ended December 2014. The stock's price-to-earnings (P/E)
ratio was 18.17. The latest book value of the company is Rs 276.69 per share. At
current value, the price-to-book value of the company is 1.47.

Tata
Teleservices(Maharashtra)

Tata Teleservices woes continued with the company reporting a Rs 3,846crore loss in 2014-15. Tata Sons, the group holding company, infused Rs
1,025 crore on the last day of the financial year, so that Tata Teleservices
could meet its financial obligations.
Tata Teleservices revenues increased marginally to Rs 10,944 crore from
Rs 10,452 crore in 2013-14, when the Tata group pumped in Rs 2,500
crore through compulsorily convertible preference shares. In 2013-14, the
company made a record loss of Rs 6,166 crore, with its net worth
completely eroded.
The company participated in auctions this March and won spectrum in
Andhra Pradesh, Delhi and Haryana by bidding Rs 4,034 crore. Tata
Teleservices has paid Rs 1,059 crore in advance to the Union government
for the air waves.
Finance costs rose to Rs 2,640 crore in 2014-15 from Rs 2,512 crore in the
prior year. The companys debt rose to Rs 27,082 crore in 2014-15 from Rs
24,506 crore in 2013-14.
Docomo has moved the London Court of Arbitration to force the Tatas to
buy back its 26 per cent stake for Rs 7,200 crore. The Tatas have sought
permission to buy the shares but the government did not allow the
transaction, citing a bar on pre-determined valuation.
Tata Teleservices lost spectrum in three circles after the Supreme Court, in
February 2012, cancelled 122 licences issued in 2008-09, when A Raja was
the telecom minister in the United Progressive Alliance government. The
company was not allotted spectrum in the Delhi circle in spite of having
paid for it.

Impacts:
On June 04, 2015, Tata Teleservices (Maharashtra) closed at Rs 6.62, up Rs 0.12,
or 1.85 percent. The 52-week high of the share was Rs 14.05 and the 52-week
low was Rs 5.62. The latest book value of the company is Rs -15.18 per share. At
current value, the price-to-book value of the company was -0.44.

Fundamental Analysis overview

(Data Based the on period between 22.05.2014-21-05-2015)
Elements
Current BSE
Price
Current NSE
Price
52 Week High
BSE
52 Week Low BSE

Bharti
Airtel
Limited
400.00

Idea
Cellular
Limited
175.75

17.80

Reliance
Comm
Limited
138.15

Tata
Comm
Limited
437.10

Tata
Tele
Services
7.43

394.7

171.5

17.85

64.5

438

7.35

425.7

203.9

39.1

156.9

504.9

14.05

326.75

129.8

16.35

56.9

318.1

7.31

MTNL

52 Week High
NSE
52 Week Low
NSE
Market
Capitalisation
Face Value
Earnings Per
Share (2014-15
Report)
Price-Earning
Ratio (2014-15
Report)
No. of Shares(in
Lakhs)

427

204

38.95

157.25

505.8

14.1

326.6

129.85

16.35

56.75

315

7.35

170,009.43

1,077.
3
10
124.21

16,875.28

12,447.38

1,382.13

5
16.51

62,323.1
8
10
5.09

5
3.57

10
3.55

10
-2.86

24.23

34.53

0.14

3.57

3.55

-2.86

39974

33,196.3
2

6,300

20,427.48

19,549.28

2,850.00

BSE Sensex
NSE Nifty
P/E(TTM)
Industry P/E
Div%
Div Yield %
Price/Book
P/C
BSE Code

26837
8135
33.02
14.29
36.00%
0.43%
2.52
9.02
532454

26837
8135
7.81
14.29
4.00%
0.23%
3.98
9.6
532822

26837
8135
2.87
14.29
0.00%
0.00%
0.47
7.65
532712

26837
8135
22.36
14.62
45.00%
1.09%
1.49
8.92
500483

26837
8135
N/A
9.67
0.00%
532371

NSE Symbol

BHARTIART
L

IDEA

26837
8135
2.28
14.62
0.00%
0.00%
0.20
2.85
50010
8
MTNL

RCOM

TATACOM
M

TTML

Why is it necessary to know the factors affecting the

aforesaid stock movement in the capital markets?
As a stock trades within its 52-week price range (the range that exists between
the 52-week low and the 52-week high), investors may show increased interest
as price nears either the high or the low. A popular strategy used by stock
traders is to buy when price exceeds its 52-week high, or to sell when price falls
below its 52-week low. The rationale behind this strategy is that if price breaks
out from the 52-week range (either above or below) there will be enough
momentum to continue the price move in a favourable direction.
Alternatively, another strategy is to sell when price reaches its 52-week high on
the assumption that price will recede, or to buy when price reaches its 52-week
low in anticipation of a value play. Traders and investors typically conduct
additional technical and/or fundamental analysis for confirmation.

Present Condition of the Stocks

Telecom stocks declined. Tata Teleservices (Maharashtra) (down 8.06%), Reliance

Communications (down 8.25%), Mahanagar Telephone Nigam (down 5.44%) and
Idea Cellular (down 0.52%) edged lower.
Bharti Airtel was off 1.33% to Rs 412.40. The stock hit a high of Rs 418.95 and a
low of Rs 409.30 so far during the day. The company announced before trading
hours on 3rd June 2015, that the company has approached investors for issuance
of debt instruments in the form of US dollar denominated Senior Unsecured
Notes. The notes have an expected tenor 10 years. The company will use the
proceeds for capital expenditure in compliance with end-use guidelines set forth
in the Master Circular by the Reserve Bank of India and all laws and regulations
of India applicable to the company. The notes are expected to be listed on the
Singapore Stock Exchange.

Technical Analysis
Estimating Discounting Rates with Beta
Analysis (22.05.2014-21-05-2015)

Fig 1.1: Estimated Discounted Rates

Fig 1.2: Bottom-Up Beta (on the basis of 52 week High, 52 Week Low)

A bottom-up beta is estimated by starting with the businesses that a firm

is in, estimating the fundamental risk or beta of each of these businesses
and taking a weighted average of these risks.
If lower than one the risk is lesser than having stock at more one beta or
close to one. As, Tata Teleservices had a continuing losses. Bharti & Idea at
the top of the business and Tata Comm is the most balanced position in
the market. Reliance is capitalising their assets so their beta average is
lower than expected and on the other hand MTNL is trying to revive
themselves.

Fig 1.3: Debt-Earnings Ratio

A debt-to-earnings ratio is one way lenders measure the ability to manage the
payments that a corporation make every month or aforesaid time to repay the
money being borrowed. Like Reliance having the highest and their steps to
reduce as mentioned earlier. With Bharti being negative on debt structure with
earnings a hopping 66002 second only to MTNL but latter is going through a
revitalisation in recent times after 2008 profit to loss making industry. Tata
Communication has a perfect balance in the high and low with their share price
being the highest among the providers. Teleservices are having a difficult time of
huge losses making their earnings on the negative and higher on the debt.

Fig 1.4: Comparative Chart of Stocks of Telecom Service Providers & SENSEX

Analysis:
India's telecommunication network is the second largest in the world based on
the total number of telephone users (both fixed and mobile phone). It has one of
the lowest call tariffs in the world enabled by the mega telephone networks and
hyper-competition among them. It has the world's third-largest Internet userbase. But in the current scenario, the industry is facing a difficult time in the
telecom service provider and can be witnessed in the Comparative chart that is a
huge volatility in the market with alarming returns. The controversy regarding
the net neutrality has taken a toll in the telecom industry, like Airtel Zero. The
bottommost graph shows number of volumes traded and on which the investors
are interested to deal on the stocks. Higher the volume, Higher the investors
interest or vice versa thus increased demand. And the fluctuation in the other
graph lines shows that the pricing level of stocks, high trade or low trade. Below
the flat line of average trade is low trade and more than the flat line is high
trade.
Bharti Airtel Ltd. and Idea Cellular Ltd. are rallying on optimism the expense of
securing spectrum for 20 years will pay off as the worlds second-largest wireless
market grows. Net incomes at the two companies have climbed at least seven
times faster than the broader market over the past six quarters as smartphones
costing less than $200 spur a jump in mobile-data use. In a highly volatile trade,
the benchmark BSE Sensex fell by 24 points to 26,813.42 on 4 th June amid

sustained foreign fund outflows triggered by deficient monsoon forecast, RBIs

cautious stance on economic recovery and rupee slumping to 20-month low.
Sensex Retreat: (Source: Indias Surging Phone Stocks Show $18 Billion Was
Well Spent)
Money managers have been piling into telecom companies amid a weakening
outlook for other industries. The S&P BSE Sensex, one of Asias best performing
stock indexes in 2014, tumbled to a six-month low on Thursday (7 th May) amid
growing concern about Prime Minister Narendra Modis ability to push through
economic reforms.
Spending on the wireless spectrum was 68 percent higher than the base price
set by the government, according to auction results released March 26. Bharti,
Idea and the U.K.s Vodafone Group Plc retained airwaves that were up for
renewal while also gaining spectrum that enables them to boost fourthgeneration offerings.
According to Ajay Srivastava, the managing director at Dimensions Consulting
Private expressed that costs are fixed for the next 20 years even as the market
continues to grow.