Bharti Airtel, A good long term pick

Bharti Airtel and Tata Communications are two companies from the telecommunication sector in my watch list. Both are a good buys at the current market price with a long term perspective. Bharti Airtel current market price on 28th April is 293.80 and Tata Communication is available at 271.50. Since the market has been treating telecom sector stocks very badly for some time, its market valuation has become attractive. The current market treatment is mainly due to intense competition in the Telecom market which has resulted in aggressive price war and dented the profitability. But it is considered as a short term phenomena.

The immediate future of Bharti Airtel continues to remain pretty cloudy. Long term investments with 5-7 years horizon until when the positive effects of consolidation in the sector could be more pronounced in nature. The company is also well-placed to benefit from the 3G revolution. Post Africa’s Zain acquisition, the company is in a better position to diversify its revenue source and allay the fears of saturation in the Indian markets. Bharti Airtel’s acquisition of 15 of Zain’s African mobile networks will make it one of the five largest mobile groups in the world by subscriber connections, according to the latest Wireless Intelligence operator-group rankings.

2009-10 Result

Consolidated sales grow by 12% during FY10, 5% during 4QFY10 compared to same period last year. Growth for the full year was led by a 38% rise in revenues from the passive infrastructure segment. Revenues from the mobile services segment stands at 63% of sales and has increased by 7% from last year. Mobile subscriber base grows by 36% during the year. Total count of subscribers stood at around 128 m at the end of March 2010.  Operating margins decline by 0.5% during the year owing to higher network operating costs (as percentage of sales). Net profit drops by 1% during 4QFY10 as compared to same period last year, grows by 17% during the full financial year 2009-10. While higher interest income aids profit growth, the higher tax expenses curbs growth during the year. Exceptional items during the year and quarter relate to acquisition related costs such as advisory and professional fees directly attributable to the acquisitions in Bangladesh and Africa. It recommended a dividend of Re 1 per share.

Subscribers

One can reasonably expect a lot of potential growth in subscriber numbers that is still remaining in the India’s telecom industry. India added a record 20 million new mobile subscribers in March 2010. India had 584.32 million subscribers at the end of March, which indicates that 49.6 percent of Indians have mobile connections, according to TRAI. India’s largest operator, Bharti Airtel had a 21.84 percent share of the market at the end of March 2010, followed by Reliance Communications with 17.53 percent share, and Vodafone Essar with a 17.26 percent share, TRAI said.

Mobile phone operator Vodafone Essar has added 3.6 million new users in March to pip number one player Bharti Airtel in mobile subscriber additions.  Bharti Airtel and Reliance added 3 million subscribers each.

Competition and Price war

Indian mobile operators have dropped voice call rates to below 0.01 Indian rupees per second in a bid to gain market share, even as new entrants are rolling out services. These gains have come at the expense of lower average revenue per user and fewer calling minutes used by subscribers. Last year, the offer of a pay-per-second plan by a new operator triggered off a price war, leading to charges of predatory pricing by some telecom operators. In Q4 2009, new telecom operators such as MTS and Uninor extended the price wars with 30 paise per minute plans which led to many cases of multiple number ownerships and churn rates. Revenue per minute (a key measurable in the telecom industry) is expected to fall by five to six per cent.

3G Spectrum

All eyes are now on the 3G auctions in which the operators are expected to participate aggressively. Failing to win 3G spectrum in metros and Circle ‘A’ areas could place them at a disadvantage vis-à-vis competition. They would, therefore, be prepared to incur higher cash outflows.

Zain Deal

The last quarter gone by also saw Bharti Airtel entering into an agreement with the Zain Group to acquire Zain Africa assets for $10.7 billion. “In the short term, Zain Telecom’s financials may have some negative overhang on Bharti’s consolidated results but on a long term basis the same would prove to be earnings accretive. The key points to be monitored are market share gains in key geographies like Nigeria, the operational turnaround of Zain Telecom’s African operations and the acceptability and success of Bharti`s model in Africa,” Sharekhan Securities said in a recent report.

Airtel is to takeover Zain’s mobile operations in 15 African countries which cover a total population of over 450 million with telecom penetration at approximately 32 percent. As well as its home market of India, Airtel also launched in Sri Lanka in 2009 and acquired Warid Telecom in Bangladesh in January 2010, bringing its total to 18 markets, a global footprint surpassed only by the large European operator groups and its new African rival, MTN. Based on Q4 2009 pro forma data, international (non-Indian) markets will account for around 30 percent of Airtel’s total connections following completion of the Zain deal.

For an enlarged Airtel Group, the challenge is obtaining approvals. Given Airtel’s domestic market is in the midst of a next-generation rollout and calls for consolidation, managing existing operations whilst steering a pan-African purchase seems a daunting challenge. Airtel already has the experience of managing one of the fastest growing markets in the world. A major opportunity for Airtel would be to transplant their Indian pricing model into some of the low-usage markets Zain occupies to drive usage quickly and garner market share. Hard work lies ahead for the Indian company to turn Zain’s loss making operations into a profitable business venture.

New Services

Airtel digital TV Recorder

Recently, Airtel digital TV- the DTH service from Bharti Airtel launched ‘Airtel digital TV Recorder’, an enhanced Set Top Box (STB) with capability to record live television, anytime, anywhere. A first of its kind example of convergence between the mobile and TV screen, Airtel offers customers the convenience, to record their favorite shows using their mobile phones from anywhere in the world.

Airtel has also introduced the first universal remote in India, 9 interactive (iTV) applications, a multilingual EPG, low battery indicator and more that offer customers the freedom to book movie ticket or update themselves on the latest stock news.

3G enabled smart phones

Taiwan-based handset maker HTC entered into an exclusive partnership with cellullar operator Bharti Airtel to launch a 3G-enabled smartphone priced at Rs 9,990. As per the alliance, the touchscreen phone will be available in the country exclusively on Airtel networks.  With the operators gearing up to launch the 3G service by the end of this year, the handset makers are coming up with 3G-enabled handsets. Besides, service providers like Airtel and Vodafone had already launched the 3G version of Apple’s iPhone in India.

Airtel Talkies, World Sim and Khel Radio

Airtel Talkies a new service that offers previews and trailers of movies which are yet to come. It also offers all time classic movies in five languages – Hindi, Tamil, Telugu, Kannada and Malayalam.

Bharti Airtel launched this month a new SIM card for global travellers through which a customer can save upto 85% on international calls. Bharti Airtel and Radio Mirchi announced a new tie-up to offer mobile radio service, ‘Mirchi Mobile’ allowing Airtel’s mobile subscribers to listen to Radio Mirchi’s FM radio services of any region. It also launched a new value added service, ‘Khel Radio’ for the subscribers of UP East, UP  West, Bihar, Mumbai,Maharashtra, and Goa. Now the Airtel subscribers can enjoy bollywood quizzes, antakshari, pehchaaan kaun and exciting games with exotic prizes everyday. Airtel prepaid and postpaid customers can access this portal by calling 56655 at a charge of Rs 1/min.

Network expansion and upgrade

The recent $1.3 billion contract with Ericsson to supply its industry-leading portfolio of energy efficient 2G/2.5G radio base stations, circuit and packet core, microwave transmission and Intelligent Network will improve voice quality and faster data access to its customers. Bharti Airtel can now look forward to reduce time to market and enable the fast rollout of 3G services as its core and transport network will be 3G-ready. The expansion, according to the agreement, will cover some of the latest technologies within the wireless world. According to Ericsson, this will bring better quality voice to end users, support more users in using one base station, enhanced data rates using Evolved EDGE technology and other new services.

Reference:

India Adds Record 20 Million Mobile Subscribers in March

April 27, 2010

http://www.pcworld.com/businesscenter/article/195025/india_adds_record_20_million_mobile_subscribers_in_march.html

Airtel launches World SIM

April 26, 2010

http://infotech.indiatimes.com/news/telecom/Airtel_launches_World_SIM/articleshow/5859922.cms

Bharti Airtel follows OnMobile in launching geographical barrier-free mobile radio services

April 26, 2010

http://www.telecomtiger.com/fullstory.aspx?storyid=8984&section=S126

Bharti Airtel launches ‘Khel Radio’ exclusive Bollywood portal

April 22, 2010

http://www.cellbharat.com/blog/7075/bharti-airtel-launches-khel-radio-exclusive-bollywood-portal/

Mobile tariffs likely to go down further

Apr 21, 2010

http://timesofindia.indiatimes.com/biz/india-business/Mobile-tariffs-likely-to-go-down-further/articleshow/5838005.cms

Top 5 Stocks to Invest in Indian Markets

April 19, 2010

http://trak.in/tags/business/2010/04/19/top-5-stocks-indian-markets/

Bharti Airtel to become global mobile superplayer: WI

Apr 15, 2010

http://www.indiainfoline.com/Markets/News/New-Wireless-Intelligence-operator-ranking-sees-Indian-market-leader-enter-top-five/4816163891

Record TV Shows Using Your Mobile Phone With Airtel

Apr 15, 2010

http://tech2.in.com/india/news/general/record-tv-shows-using-your-mobile-phone-with-airtel/119312/0

Bharti, RCom, Idea Cellular may post lower Q4 profits

April 12, 2010

http://www.thehindubusinessline.com/2010/04/13/stories/2010041352150400.htm

Bharti Airtel Selects Ericsson for Network Expansion

April 06, 2010

http://voice-quality.tmcnet.com/topics/voice-quality/articles/80907-bharti-airtel-selects-ericsson-network-expansion.htm

Airtel Talkies brings movie content on mobiles pre-release

April 05, 2010

http://economictimes.indiatimes.com/news/news-by-industry/media/entertainment-/entertainment/Airtel-Talkies-brings-movie-content-on-mobiles-pre-release/articleshow/5763054.cms

HTC in tie-up with Airtel for 3G smart phone handset

April 03, 2010

http://indiatoday.intoday.in/site/Story/91154/Business/HTC+in+tie-up+with+Airtel+for+3G+smartphone+handset.html


3 thoughts on “Bharti Airtel, A good long term pick”

  1. The study is good… but I doubt the future of AirTel. They are not bothered about customers. The customer care is one the worst. Many leave AirTel if possible, some are still with them because they do not wish to change their number. So this will affect them.

    And Tata, they are going to be the no.1 in India when they take over vodafone and MTS

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