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INSTITUTIONAL EQUITY RESEARCH
Page | 1 | PHILLIPCAPITAL INDIA RESEARCH
Telecom
Insatiable appetite for spectrum continues INDIA | Sector Update
7 October 2016
They say one ends up over eating at a buffet because of being spoilt for choices. The recently concluded spectrum auctions are an example of the telecom operators’ insatiable appetite – the government put out all the available bands and spectrum up for auction and the operators went to town buying it all up. The saving grace was that no operator submitted bids for the ultra‐expensive 700MHz. All have bought spectrum that is more than their current requirements. Jio, which is just days into the launch of its operations has added “capacity spectrum”. With this significant addition of data spectrum, all operators are now battle‐ready. The scramble for capacity spectrum and the ensuing capacity addition in the sector is a clear indicator that the incumbents’ strategy is to improve the quality of services to counter Jio and prevent subscriber churn at any cost. The key takeaways of the spectrum auction are as follows: Total bids of Rs 660bn are significantly higher than expectations; Idea still calibrated: The total bids submitted by the telecom operators exceeded our expectations of Rs 400bn, as incumbents Bharti (Rs 142bn vs. our expectations of Rs 21bn), Vodafone (Rs 202bn vs. Rs 115bn), and Idea Cellular (Rs 128bn vs. Rs 64bn), bought higher‐than‐expected capacity spectrum. Even Reliance Jio has bought capacity in 2300MHz, which has surprised us. Bharti and Vodafone’s bids have significantly exceeded our expectations while Idea’s bidding, though aggressive, is well calibrated, considering its weaker spectrum footprint. With this acquisition, Idea has significantly enhanced its capacity, and it is much better positioned to defend its market share. Vodafone emerges as the top bidder; acquisition in the 2500MHz band is surprising: Vodafone has primarily focused on enhancing its 4G footprint. With its significant acquisition of spectrum in 2500MHz, 2100MHz, and some in 1800MHz, it has 4G coverage in 17 circles, which cover 91% of its revenues and 94% of mobile‐data revenues. Vodafone has faced capacity issues of late, and this addition was expected; nevertheless, its acquisition in 2500MHz, which does not have the evolved handset ecosystem of 1800MHz or 2100MHz (3G), surprised us. Bharti buys ahead of market spectrum, again: In the race to future‐proof, Bharti Airtel’s spending, at Rs 142bn, was significantly higher than expectations. It acquired spectrum largely in 2300MHz, which is an essential capacity band. It has spent Rs 103bn in 15 circles for additional carriers in 3G and 4G bands, significantly upping its capacity. Bharti is clearly keeping in step with Jio, which also has added capacity in the 2300MHz band. The auctions make it clearer that Bharti will match Jio in its entire product offering, which will not only help it to maintain, but also gain revenue market share in the medium‐ to long‐term. Jio buys additional carriers in 2300MHz: While we expected bulk of Jio’s spending to be in 800MHz and 1800MHz, it surprised us by adding spectrum in 2300MHz. Jio’s operations are still in a nascent stage, and addition of this much spectrum clearly indicates that its strategy is based on churning incumbents’ high‐value customers. Idea Cellular adds multi‐year capacity spectrum: Idea has often been criticised for lacking a quality data footprint. It has addressed this concern by buying significant 4G and 3G spectrum, which takes its data footprint pan‐India (almost) and adds significant capacity in leadership circles (like Maharashtra), where it is now well placed to defend its market share.
Companies Bharti Airtel Reco BUY CMP, Rs 319 Target Price, Rs 390 IDEA Cellular Reco BUY CMP, Rs 80 Target Price, Rs 100 Naveen Kulkarni, CFA, FRM (+ 9122 6667 9947) [email protected] Manoj Behera (+ 9122 6667 9973) [email protected]
INSTITUTIONAL EQUITY RESEARCH
Bharti Airtel (BHARTI IN)
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Combat experience will help deliver outperformance INDIA | TELECOM | Company Update
7 October 2016
In the recently concluded spectrum auctions, Bharti Airtel has paid Rs 142bn to secure 173.8MHz of spectrum across three bands. Its addition of primarily capacity spectrum is indicative of its strategic intent of maintaining its leadership and protecting its market share at any cost. Bharti has deliberately matched Jio’s spectrum footprint and it will compete with the latter aggressively on product quality. Bharti also views the current stage of market transition – of voice to data – as a significant opportunity to gain market share. While its strategic intent is correct, current sluggish market conditions mean that its return on investment will be protracted. The financial implications in the near‐ to medium‐term are negative. We have cut our estimates, taking into consideration the higher‐than‐expected spectrum proceeds, and impact of Jio on voice pricing. Key takeaways for Bharti from the recently concluded auctions are as follows: Investing ahead of market continues; more strategic: Bharti launched 4G operations significantly ahead of market and it had already garnered pan‐India 3G and 4G spectrum through spectrum trading before the auctions. While 4G offtake is happening at a reasonable pace, it had significant capacity already (pre‐auctions). Significant addition in 15 circles and new capability in seven circles is indicative of its aggressive strategy to gain market share. 4G services are now more tactical in nature; they help the brand image and provide significantly better customer experience. Improvement in brand image helps in churning customers from other operators – its last 12‐month endeavour to provide better quality network is reflected in its market share gains over this period. Bharti counters Jio point by point: It is now very clear that Bharti will match Jio aggressively on product offering. In the recent auctions, Bharti added additional capacity in the 2300MHz and 2100MHz bands in 15 circles while Jio added it in 16 circles. Before the auctions, Bharti bought 2300MHz from Aircel, adding eight circles, and taking its 2300MHz footprint to 17 circles; this spectrum is effective in providing capacity in urban areas and is helping Bharti in providing an effective counter to Jio, which has launched multiband 4G services. With the acquisition of additional spectrum from the auctions, Bharti has further enhanced its data capacity and has a very effective counter to Jio’s aggressive market strategy. Peak of capex cycle; leverage manageable: This high‐cost spectrum acquisition and subsequent building of significant capacity means that capex has largely peaked for Bharti. Net‐debt‐to‐EBIDTA, post‐acquisition, will rise to 2.25 from 2.0. This means the gearing is in a manageable zone. We believe that capex should significantly decline from current levels after this capacity build‐out phase. However, taking a conservative approach, we maintain our capex estimates at elevated levels at Rs 300bn/220bn for FY18/19. Estimates cut; maintain Buy: We have cut our estimates taking into account higher spectrum capex and the impact of Jio’s launch. Bharti’s aggressive strategy will translate into market share gains in a consolidating market. Pricing in the near‐ to medium‐term will remain highly volatile, but its tremendous experience in fighting price wars and investing ahead of market will help Bharti to deliver operational outperformance. We believe significant negatives are now largely factored into the price. We cut our price target to Rs 390 (from Rs 450 earlier) with the change in estimates. Considering significant upside from current levels, we maintain our Buy recommendation.
BUY (Maintain) CMP RS 319 TARGET RS 390 (+22%) COMPANY DATA O/S SHARES (MN) : 3997MARKET CAP (RSBN) : 1291MARKET CAP (USDBN) : 1952 ‐ WK HI/LO (RS) : 385 / 282LIQUIDITY 3M (USDMN) : 20PAR VALUE (RS) : 5 SHARE HOLDING PATTERN, % Jun 16 Mar 16 Dec 15PROMOTERS : 66.7 66.7 65.6FII / NRI : 16.3 16.8 17.8FI / MF : 10.5 10.0 7.6NON PRO : 5.5 0.5 5.5PUBLIC & OTHERS : 0.9 6.1 3.5 PRICE PERFORMANCE, %
1MTH 3MTH 1YRABS 0.2 ‐11.9 ‐7.6REL TO BSE 3.3 ‐15.4 ‐12.0 PRICE VS. SENSEX
Source: Phillip Capital India Research KEY FINANCIALS Rs bn FY16 FY17E FY18ENet Sales 966 1,011 1,104EBIDTA 341 366 409Net Profit 39 49 81EPS, Rs 9.8 12.3 20.2PER, x 32.8 25.9 15.9EV/EBIDTA, x 7.1 6.7 5.9P/BV, x 2.0 1.8 1.6ROE, % 5.9 7.0 10.0Debt/Equity (%) 177.7 164.9 144.4
Source: PhillipCapital India Research Est.
90
110
130
150
Apr‐14 Dec‐14 Aug‐15 Apr‐16Bharti BSE Sensex
BHARTI AIRTEL QUARTERLY UPDATE
Bharti Airtel’s spectrum holding post auction
3G 4G
900 1800 900 2100 1800 2300
Andhra Pradesh 4.0 5.0 5.0 5.0 5.0 30.0
Assam 3.0 5.7 5.0 5.0 3.8 30.0
Bihar 7.8 3.0 ‐ 10.0 5.0 30.0
Delhi 1.0 2.0 5.0 10.0 5.0 30.0
Gujarat ‐ 6.2 ‐ 5.0 5.0 10.0
Haryana ‐ 9.6 ‐ 5.0 6.6 20.0
Himachal Pradesh 2.4 5.2 5.0 5.0 5.0 10.0
Jammu & Kashmir 6.2 2.6 ‐ 10.0 2.4 20.0
Karnataka 3.8 3.8 5.0 5.0 5.0 30.0
Kerala ‐ 6.2 ‐ 5.0 5.0 20.0
Kolkata 2.0 2.0 5.0 ‐ 7.0 30.0
Madhya Pradesh ‐ 8.8 ‐ 5.0 10.0 20.0
Maharashtra ‐ 8.2 ‐ 5.0 5.0 20.0
Mumbai ‐ 10.2 5.0 5.0 5.0 30.0
North East 8.2 5.4 5.0 5.0 6.4 30.0
Odisha 7.4 3.0 ‐ 5.0 10.0 30.0
Punjab 5.0 4.2 5.0 ‐ 5.8 20.0
Rajasthan 1.0 3.2 5.0 10.0 6.8 ‐
Tamil Nadu 6.2 9.2 ‐ 10.0 5.0 30.0
Uttar Pradesh (East) 6.2 1.0 ‐ 5.0 5.0 ‐
Uttar Pradesh (West) ‐ 6.2 ‐ 5.0 5.0 ‐
West Bengal 6.6 6.2 ‐ 5.0 ‐ 30.0
Total 70.8 116.85 50 125 118.8 470
Source: Company, PhillipCapital India Research
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BHARTI AIRTEL QUARTERLY UPDATE
Financials
Income Statement Y/E Mar, Rs bn FY15 FY16e FY17e FY18eNet sales 921 966 1,011 1,104Growth, % 7 5 5 9Total income 921 966 1,011 1,104Other Operating expenses ‐608 ‐625 ‐645 ‐695EBITDA (Core) 313 341 366 409Growth, % 12.8 8.8 7.3 12.0Margin, % 34.0 35.3 36.2 37.1Depreciation ‐155 ‐174 ‐185 ‐200EBIT 158 166 180 210Growth, % 30.2 5.3 8.5 16.3Margin, % 17.1 17.2 17.8 19.0Interest paid ‐50 ‐70 ‐84 ‐66Other Non‐Operating Income 0 0 0 0Pre‐tax profit 115 107 108 156Tax provided ‐54 ‐60 ‐49 ‐64Profit after tax 61 47 59 92Others (Minorities, Associates) ‐1 ‐8 ‐10 ‐12Net Profit 60 39 49 81Growth, % 119.9 (34.7) 26.4 63.5Net Profit (adjusted) 60 39 49 81Unadj. shares (bn) 4.0 4.0 4.0 4.0Wtd avg shares (bn) 4.0 4.0 4.0 4.0 Balance Sheet Y/E Mar, Rs mn FY15 FY16e FY17e FY18eCash & bank 12 37 4 21Debtors 67 73 76 84Inventory 1 2 2 2Other current assets 142 110 114 123Total current assets 222 222 196 229Gross fixed assets 2,294 2,859 3,157 3,456Net fixed assets 1,325 1,703 1,785 1,837Non‐current assets 234 210 203 203Total assets 2,116 2,364 2,446 2,580 Current liabilities 579 581 606 640Total current liabilities 579 581 606 640Non‐current liabilities 869 1,075 1,075 1,080Total liabilities 1,448 1,656 1,681 1,720Paid‐up capital 20 20 20 20Reserves & surplus 600 636 689 784Shareholders’ equity 668 708 765 860Total equity & liabilities 2,116 2,364 2,446 2,580
Source: Company, PhillipCapital India Research Estimates
Cash Flow FY15 FY16e FY17e FY18e
Pre‐tax profit 115 107 108 156Depreciation 155 174 185 200Chg in working capital 118 ‐97 2 ‐24Total tax paid ‐54 ‐60 ‐49 ‐64Other operating activities 0 0 0 0Cash flow from operating activities 334 125 246 268Capital expenditure ‐194 ‐552 ‐268 ‐251Chg in marketable securities ‐32 32 ‐4 ‐9Cash flow from investing activities ‐226 ‐541 ‐256 ‐239Equity raised/(repaid) 0 0 0 0Debt raised/(repaid) 111 298 0 2Other financing activities 0 0 0 0Cash flow from financing activities 111 294 ‐6 ‐9Net chg in cash 263 ‐123 ‐15 20 Valuation Ratios
FY15 FY16e FY17e FY18ePer Share data EPS (INR) 14.9 9.8 12.3 20.2Growth, % 119.9 (34.7) 26.4 63.5Book NAV/share (INR) 154.9 164.1 177.3 201.1FDEPS (INR) 14.9 9.8 12.3 20.2CEPS (INR) 53.8 53.4 58.6 70.1CFPS (INR) 66.4 50.1 61.6 77.5Return ratios Return on assets (%) 5.3 4.7 5.2 6.0Return on equity (%) 9.7 5.9 7.0 10.0Return on capital employed (%) 6.6 5.5 6.2 7.1Turnover ratios Asset turnover (x) 0.9 0.8 0.7 0.7Sales/Total assets (x) 0.5 0.5 0.5 0.5Sales/Net FA (x) 0.7 0.6 0.6 0.6Working capital/Sales (x) (0.4) (0.4) (0.4) (0.4)Fixed capital/Sales (x) 1.6 1.9 1.9 1.8Working capital days (146.1) (149.8) (149.2) (142.7)Liquidity ratios Current ratio (x) 0.4 0.4 0.3 0.4Quick ratio (x) 0.4 0.4 0.3 0.4Interest cover (x) 3.2 2.4 2.2 3.2Total debt/Equity (%) 148.8 177.7 164.9 144.4Net debt/Equity (%) 146.9 172.0 164.4 141.9Valuation PER (x) 21.4 32.8 25.9 15.9Price/Book (x) 2.1 2.0 1.8 1.6EV/Net sales (x) 2.4 2.5 2.4 2.2EV/EBITDA (x) 7.0 7.1 6.7 5.9EV/EBIT (x) 13.9 14.5 13.6 11.5
INSTITUTIONAL EQUITY RESEARCH
Idea Cellular (IDEAIN) Splurged on spectrum, but lowers future needs
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INDIA | TELECOM | Company Update
7 October 2016
Idea acquired 274.6MHz of spectrum in the auction for a total outgo of Rs 128bn, of which it will pay Rs 64bn upfront and the rest over 10 years (after a moratorium of three years). After the auction, Idea has 4G spectrums in 20 circles (excluding Delhi and Kolkata) and 3G in 17 circles, enabling it to complete its pan‐India mobile broadband footprint across all 22 circles. Idea now owns 64 broadband carriers and intends to use 47 of these for 4G services, effectively covering 94% of its revenue base and 17 carriers for 3G services. Outgo higher than estimated, but significantly reduces future requirement: Although Idea spent much higher than what we estimated (Rs 65‐70bn), with the amount of spectrum it has acquired, the company has managed to significantly augment its network capacity – this can support superlative data volume growth for the next 3‐4 years, thereby significantly reducing spectrum requirement in the near future. Additionally, it now well equipped to counter Reliance JIO’s threat, especially in its leadership circles (with the auctions acquisitions, Idea has more than two carriers in 4G in all of its leadership circles). M&A activity ruled out for the near term: Recent media reports had indicated that Idea and Vodafone are exploring opportunities for a possible merger, which could have been a significant positive for both players and the telecom industry. However, looking at the quantum of spectrum bought by every player, we believe that any M&A activity involving any of the top four players can be easily ruled out in the near term; it does seem like each incumbents wants to battle it out on its own. Key takeaways from conference call:
Post‐acquisition of spectrum, Idea indicated that its spectrum requirement has reduced significantly for the next 3‐4 years. It would incur Rs 80bn capex in FY17, and indicated that capex intensity should start tapering from FY18
Idea is looking for partners for active infrastructure sharing (similar to RCOM‐RJIO’s arrangement), which can reduce its future capex requirement
After the auction, its net debt would increase to Rs 500bn and the net‐debt‐to‐EBITDA ratio would be 4x (which is within its comfort level of <4.2x).
In the near term, it is looking to monetise its tower assets to deleverage its balance sheet.
Ruled out equity dilution in the near term Indicated that the handset ecosystem evolved in the 2300MHz band due to network deployment by Chinese and Indian telecom service providers. Similarly, 2500MHz has been allotted to two Chinese operators; hence, when they start rolling out their network, this ecosystem should evolve and aid Idea’s strategy of 4G rollout in the 2500MHz band.
Idea indicated that data ARPU will remain stable at current levels, as volume growth compensates for drop in realisation
Impact on estimates: While maintaining our FY17 revenue and EBITDA estimates, we reduce our FY18 estimates by 1% and 3% respectively, on lower voice‐revenue‐growth assumptions. We also reduce our PAT estimates by 4%/65% for FY17/18, to factor in higher D&A and interest expenses because of higher than estimated spectrum capex. We maintain our BUY rating with a reduced target price of Rs 100 (from earlier Rs 130), implying 25% upside from current levels.
BUY (Maintain) CMP RS 80 TARGET RS 100 (+25%) COMPANY DATA O/S SHARES (MN) : 3601MARKET CAP (RSBN) : 288MARKET CAP (USDBN) : 4.352 ‐ WK HI/LO (RS) : 160 / 78LIQUIDITY 3M (USDMN) : 14.2PAR VALUE (RS) : 10 SHARE HOLDING PATTERN, % Jun 16 Mar 16 Dec 15PROMOTERS : 42.2 42.2 42.2FII / NRI : 25.8 24.3 24.2FI / MF : 6.4 5.1 5.3NON PRO : 23.7 0.4 27.0PUBLIC & OTHERS : 1.9 28.1 1.4 PRICE PERFORMANCE, %
1MTH 3MTH 1YRABS ‐5.7 ‐24.2 ‐49.5REL TO BSE ‐2.7 ‐27.6 ‐53.9 PRICE VS. SENSEX
50
80
110
140
170
Apr‐14 Dec‐14 Aug‐15 Apr‐16Idea BSE Sensex
Source: Phillip Capital India Research KEY FINANCIALS Rs mn FY16 FY17E FY18ENet Sales 3,59,741 3,97,692 4,19,317EBIDTA 1,30,232 1,41,169 1,43,278Net Profit 30,731 14,656 5,542EPS, Rs 8.5 4.1 1.5PER, x 11.3 23.8 62.9EV/EBIDTA, x 5.5 5.3 5.5P/BV, x 1.4 1.3 1.3ROE, % 11.9 5.4 2.0Debt/Equity (%) 149 157 172
Source: PhillipCapital India Research Est.
IDEA CELLULAR QUARTERLY UPDATE
Idea Cellular’s spectrum holding 900MHz 1800MHz GSM 1800MHz LTE 2100MHz 2300MHz 2500MHz Maharashtra 9.0 4.0 7.0 5.0 10.0 10.0 Kerala 6.0 ‐ 10.0 5.0 10.0 10.0 M.P. 7.4 2.0 9.6 5.0 10.0 20.0 Punjab 5.6 3.0 7.0 5.0 ‐ ‐ Haryana 6.0 1.0 9.8 5.0 ‐ 10.0 Andhra Pradesh 5.0 1.0 5.0 5.0 ‐ 10.0 UP (W) 5.0 2.2 7.2 5.0 ‐ 10.0 Gujarat 5.0 1.6 8.4 5.0 ‐ 10.0 HP ‐ 4.4 5.4 5.0 ‐ 10.0 Delhi 5.0 8.6 ‐ ‐ ‐ ‐ UP (E) ‐ 6.2 ‐ 10.0 ‐ 10.0 Karnataka 5.0 1.0 5.0 ‐ ‐ ‐ Mumbai ‐ 6.4 ‐ 5.0 ‐ ‐ Rajasthan ‐ 6.2 5.0 5.0 ‐ 10.0 Bihar ‐ 5.7 5.0 5.0 ‐ 10.0 Tamil Nadu ‐ 6.4 5.0 ‐ ‐ ‐ North East ‐ 6.0 5.0 ‐ ‐ 10.0 J&K ‐ 5.0 5.0 5.0 ‐ 10.0 Kolkata ‐ 5.0 ‐ 5.0 ‐ ‐ Orissa ‐ 5.0 5.0 ‐ ‐ 10.0 West Bengal ‐ 6.3 5.0 ‐ ‐ 10.0 Assam ‐ 5.0 5.0 ‐ ‐ 10.0 Total 59.0 91.9 114.4 80.0 30.0 170.0
Source: Company, PhillipCapital India Research
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IDEA CELLULAR QUARTERLY UPDATE
Financials
Income Statement Y/E Mar, Rs mn FY15 FY16e FY17e FY18eNet sales 3,15,709 3,59,741 3,97,692 4,19,317Growth, % 19 14 11 5Total income 3,15,709 3,59,741 3,97,692 4,19,317Other Operating expenses ‐2,07,592 ‐2,29,510 ‐2,56,523 ‐2,76,039EBITDA (Core) 1,08,117 1,30,232 1,41,169 1,43,278Growth, % 29.7 20.5 8.4 1.5Margin, % 34.2 36.2 35.5 34.2Depreciation ‐53,036 ‐66,508 ‐85,989 ‐95,450EBIT 55,081 63,724 55,181 47,828Growth, % 44.4 15.7 (13.4) (13.3)Margin, % 17.4 17.7 13.9 11.4Interest paid ‐10,452 ‐18,816 ‐32,632 ‐39,302Pre‐tax profit 49,325 47,179 22,548 8,526Tax provided ‐17,396 ‐16,447 ‐7,892 ‐2,984Profit after tax 31,929 30,731 14,656 5,542Net Profit 31,929 30,731 14,656 5,542Growth, % 62.3 (3.8) (52.3) (62.2)Net Profit (adjusted) 31,929 30,731 14,656 5,542Unadj. shares (m) 3,595 3,595 3,595 3,595Wtd avg shares (m) 3,595 3,595 3,595 3,595 Balance Sheet Y/E Mar, Rs mn FY15 FY16e FY17e FY18eCash & bank 1,30,805 21,546 24,401 35,426Marketable securities at cost 43,210 36,139 36,139 36,139Debtors 9,789 11,776 11,931 12,580Inventory 710 1,065 1,193 1,258Loans & advances 12,290 11,990 13,255 13,975Other current assets 1,062 20 22 23Total current assets 1,97,865 82,537 86,941 99,401Gross fixed assets 5,53,912 10,71,875 12,16,69213,58,991Less: Depreciation ‐2,67,902 ‐3,34,410 ‐4,20,398 ‐5,15,848Add: Capital WIP 1,20,793 6,500 6,500 6,500Net fixed assets 4,06,803 7,43,965 8,02,793 8,49,643Total assets 5,02,109 7,77,156 8,40,389 8,99,698Current liabilities 71,401 83,866 92,714 97,755Total current liabilities 71,401 83,866 92,714 97,755Non‐current liabilities 2,00,415 4,35,614 4,76,617 5,26,617Total liabilities 2,71,816 5,19,480 5,69,330 6,24,372Paid‐up capital 35,978 36,005 36,005 36,005Reserves & surplus 1,94,314 2,21,670 2,35,053 2,39,322Shareholders’ equity 2,30,292 2,57,676 2,71,058 2,75,327Total equity & liabilities 5,02,109 7,77,156 8,40,389 8,99,698
Source: Company, PhillipCapital India Research Estimates
Cash Flow FY15 FY16e FY17e FY18e
Pre‐tax profit 49,325 47,179 22,548 8,526Depreciation 53,036 66,508 85,989 95,450Chg in working capital ‐11,746 11,464 7,298 3,606Total tax paid ‐15,361 19,099 ‐7,892 ‐2,984Cash flow from operating activities 75,255 1,44,250 1,07,943 1,04,598Capital expenditure ‐49,625 ‐4,03,670 ‐1,44,817 ‐1,42,300Chg in marketable securities ‐10,636 7,071 0 0Cash flow from investing activities ‐60,261 ‐3,96,599 ‐1,44,817 ‐1,42,300Equity raised/(repaid) 2,782 27 0 0Debt raised/(repaid) ‐15,252 1,99,653 41,002 50,000Cash flow from financing activities ‐13,732 1,98,418 39,740 48,738Net chg in cash 1,262 ‐53,932 2,867 11,036 Valuation Ratios
FY15 FY16e FY17e FY18ePer Share data EPS (INR) 8.9 8.5 4.1 1.5Growth, % 49.3 (3.8) (52.3) (62.2)Book NAV/share (INR) 64.1 71.7 75.4 76.6FDEPS (INR) 8.9 8.5 4.1 1.5CEPS (INR) 23.6 27.0 28.0 28.1CFPS (INR) 19.6 39.5 30.0 29.1Return ratios Return on assets (%) 7.2 6.0 4.1 3.3Return on equity (%) 13.9 11.9 5.4 2.0Return on capital employed (%) 9.5 7.6 4.9 3.9Turnover ratios Asset turnover (x) 0.8 0.7 0.5 0.5Sales/Total assets (x) 0.6 0.5 0.5 0.5Sales/Net FA (x) 0.8 0.6 0.5 0.5Working capital/Sales (x) (0.2) (0.2) (0.2) (0.2)Fixed capital/Sales (x) 1.8 3.0 3.1 3.2Working capital days (55.0) (59.9) (60.9) (60.9)Liquidity ratios Current ratio (x) 2.8 1.0 0.9 1.0Quick ratio (x) 2.8 1.0 0.9 1.0Interest cover (x) 5.3 3.4 1.7 1.2Total debt/Equity (%) 79.8 148.8 156.6 172.3Net debt/Equity (%) 23.0 140.5 147.6 159.5Valuation PER (x) 10.9 11.3 23.8 62.9Price/Book (x) 1.5 1.4 1.3 1.3EV/Net sales (x) 1.3 2.0 1.9 1.9EV/EBITDA (x) 3.7 5.5 5.3 5.5EV/EBIT (x) 7.3 11.2 13.6 16.5
SECTOR SECTOR UPDATE
Vodafone’s spectrum holding post auction 900 1800 2100 2500
AP ‐ 6.8 ‐ ‐ Assam ‐ 15.0 5.0 10.0 Bihar ‐ 7.0 ‐ ‐ Delhi 5.0 10.0 5.0 20.0 Gujarat 6.0 10.8 5.0 20.0 Haryana 6.2 5.0 10.0 10.0 HP ‐ 5.8 ‐ ‐ J&K ‐ 7.0 ‐ ‐ Karnataka ‐ 13.0 5.0 ‐ Kerala 6.4 10.0 5.0 10.0 Kolkata 7.0 10.0 5.0 20.0 MP ‐ 7.0 ‐ ‐ Maharashtra 5.0 1.4 10.0 20.0 Mumbai 11.0 8.2 5.0 20.0 North East ‐ 14.8 5.0 10.0 Orissa 5.0 7.0 5.0 10.0 Punjab ‐ 11.2 5.0 10.0 Rajasthan 6.4 5.0 10.0 10.0 Tamil Nadu 6.2 1.0 15.0 ‐ UP ‐ East 5.6 8.6 10.0 10.0 UP ‐ West 6.2 5.0 5.0 10.0 West Bengal 6.6 12.0 5.0 10.0 Total 82.6 181.6 115.0 200.0
Reliance JIO’s spectrum holding post auction
800 1800 2300
Andhra Pradesh 3.8 5.8 30.0
Assam 5.0 5.4 30.0
Bihar 5.0 5.0 30.0
Delhi 3.8 5.4 30.0
Gujarat 8.8 6.0 30.0
Haryana 5.0 5.0 20.0
Himachal Pradesh 5.0 10.4 30.0
Jammu & Kashmir 5.0 10.0 20.0
Karnataka 3.8 5.0 30.0
Kerala 3.8 5.0 30.0
Kolkata 5.0 10.0 30.0
Madhya Pradesh 5.0 6.4 30.0
Maharashtra 3.8 5.0 30.0
Mumbai 5.0 6.6 30.0
North East 5.0 6.4 30.0
Odisha 5.0 5.0 30.0
Punjab 7.5 5.2 20.0
Rajasthan 7.5 10.0 20.0
Tamil Nadu 3.8 6.8 30.0
Uttar Pradesh (East) 6.3 6.4 20.0
Uttar Pradesh (West) 5.0 5.0 20.0
West Bengal 3.8 10.6 30.0
Total 111.3 146.4 600.0
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SECTOR SECTOR UPDATE
Stock Price, Price Target and Rating History (Bharti Airtel)
B (TP 460)
B (TP 430)
B (TP 390)B (TP 390)
B (TP 400)
B (TP 515)
B (TP 450)B (TP 450)
B (TP 450)
B (TP 475)B (TP 450)
B (TP 450)
B (TP 450)B (TP 450)
B (TP 450)B (TP 450)
200
250
300
350
400
450
500
S‐13 N‐13 D‐13 F‐14 M‐14M‐14 J‐14 A‐14 S‐14 N‐14 D‐14 F‐15 M‐15M‐15 J‐15 J‐15 S‐15 O‐15 D‐15 J‐16 M‐16A‐16 J‐16 J‐16 S‐16
Stock Price, Price Target and Rating History (Idea Cellular)
B (TP 210)
B (TP 195) B (TP 165)B (TP 180)
B (TP 200) B (TP 200)
B (TP 325)
B (TP 215)B (TP 200)
B (TP 175)B (TP 165)
B (TP 130)
B (TP 130)
0
50
100
150
200
250
O‐13 D‐13 J‐14 F‐14 A‐14 J‐14 J‐14 S‐14 O‐14 D‐14 J‐15 M‐15 A‐15 J‐15 J‐15 S‐15 O‐15 D‐15 J‐16 M‐16 A‐16 J‐16 J‐16 S‐16
Rating Methodology We rate stock on absolute return basis. Our target price for the stocks has an investment horizon of one year. Rating Criteria Definition
BUY >= +15% Target price is equal to or more than 15% of current market price
NEUTRAL ‐15% > to < +15% Target price is less than +15% but more than ‐15%
SELL <= ‐15% Target price is less than or equal to ‐15%.
Page | 9 | PHILLIPCAPITAL INDIA RESEARCH
SECTOR SECTOR UPDATE
Page | 10 | PHILLIPCAPITAL INDIA RESEARCH
Contact Information (Regional Member Companies)
SINGAPORE: Phillip Securities Pte Ltd 250 North Bridge Road, #06‐00 RafflesCityTower,
Singapore 179101 Tel : (65) 6533 6001 Fax: (65) 6535 3834
www.phillip.com.sg
MALAYSIA: Phillip Capital Management Sdn Bhd B‐3‐6 Block B Level 3, Megan Avenue II,
No. 12, Jalan Yap Kwan Seng, 50450 Kuala Lumpur Tel (60) 3 2162 8841 Fax (60) 3 2166 5099
www.poems.com.my
HONG KONG: Phillip Securities (HK) Ltd 11/F United Centre 95 Queensway Hong Kong Tel (852) 2277 6600 Fax: (852) 2868 5307
www.phillip.com.hk
JAPAN: Phillip Securities Japan, Ltd 4‐2 Nihonbashi Kabutocho, Chuo‐ku
Tokyo 103‐0026 Tel: (81) 3 3666 2101 Fax: (81) 3 3664 0141
www.phillip.co.jp
INDONESIA: PT Phillip Securities Indonesia ANZTower Level 23B, Jl Jend Sudirman Kav 33A,
Jakarta 10220, Indonesia Tel (62) 21 5790 0800 Fax: (62) 21 5790 0809
www.phillip.co.id
CHINA: Phillip Financial Advisory (Shanghai) Co. Ltd. No 550 Yan An East Road, OceanTower Unit 2318
Shanghai 200 001 Tel (86) 21 5169 9200 Fax: (86) 21 6351 2940
www.phillip.com.cn
THAILAND: Phillip Securities (Thailand) Public Co. Ltd. 15th Floor, VorawatBuilding, 849 Silom Road,
Silom, Bangrak, Bangkok 10500 Thailand Tel (66) 2 2268 0999 Fax: (66) 2 2268 0921
www.phillip.co.th
FRANCE: King & Shaxson Capital Ltd. 3rd Floor, 35 Rue de la Bienfaisance
75008 Paris France Tel (33) 1 4563 3100 Fax : (33) 1 4563 6017
www.kingandshaxson.com
UNITED KINGDOM: King & Shaxson Ltd. 6th Floor, Candlewick House, 120 Cannon Street
London, EC4N 6AS Tel (44) 20 7929 5300 Fax: (44) 20 7283 6835
www.kingandshaxson.com
UNITED STATES: Phillip Futures Inc. 141 W Jackson Blvd Ste 3050
The Chicago Board of TradeBuilding Chicago, IL 60604 USA
Tel (1) 312 356 9000 Fax: (1) 312 356 9005
AUSTRALIA: PhillipCapital Australia Level 10, 330 Collins Street
Melbourne, VIC 3000, Australia Tel: (61) 3 8633 9800 Fax: (61) 3 8633 9899
www.phillipcapital.com.au
SRI LANKA: Asha Phillip Securities Limited Level 4, Millennium House, 46/58 Navam Mawatha,
Colombo 2, Sri Lanka Tel: (94) 11 2429 100 Fax: (94) 11 2429 199
www.ashaphillip.net/home.htm
INDIA PhillipCapital (India) Private Limited
No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400013 Tel: (9122) 2300 2999 Fax: (9122) 6667 9955 www.phillipcapital.in
Management(91 22) 2483 1919
Kinshuk Bharti Tiwari (Head – Institutional Equity) (91 22) 6667 9946(91 22) 6667 9735
Research IT Services Pharma & Speciality Chem
Dhawal Doshi (9122) 6667 9769 Vibhor Singhal (9122) 6667 9949 Surya Patra (9122) 6667 9768Nitesh Sharma, CFA (9122) 6667 9965 Shyamal Dhruve (9122) 6667 9992 Mehul Sheth (9122) 6667 9996Banking, NBFCs Infrastructure StrategyManish Agarwalla (9122) 6667 9962 Vibhor Singhal (9122) 6667 9949 Naveen Kulkarni, CFA, FRM (9122) 6667 9947Pradeep Agrawal (9122) 6667 9953 Deepak Agarwal (9122) 6667 9944 TelecomParesh Jain (9122) 6667 9948 Logistics, Transportation & Midcap Naveen Kulkarni, CFA, FRM (9122) 6667 9947Consumer & Retail Vikram Suryavanshi (9122) 6667 9951 Manoj Behera (9122) 6667 9973Naveen Kulkarni, CFA, FRM (9122) 6667 9947 Media TechnicalsJubil Jain (9122) 6667 9766 Manoj Behera (9122) 6667 9973 Subodh Gupta, CMT (9122) 6667 9762Preeyam Tolia (9122) 6667 9950 Metals Production ManagerCement Dhawal Doshi (9122) 6667 9769 Ganesh Deorukhkar (9122) 6667 9966Vaibhav Agarwal (9122) 6667 9967 Yash Doshi (9122) 6667 9987 EditorEconomics Mid‐Caps & Database Manager Roshan Sony 98199 72726Anjali Verma (9122) 6667 9969 Deepak Agarwal (9122) 6667 9944 Sr. Manager – Equities SupportEngineering, Capital Goods Oil & Gas Rosie Ferns (9122) 6667 9971Jonas Bhutta (9122) 6667 9759 Sabri Hazarika (9122) 6667 9756Vikram Rawat (9122) 6667 9986
Sales & Distribution Ashvin Patil (9122) 6667 9991 Sales Trader Zarine Damania (9122) 6667 9976Shubhangi Agrawal (9122) 6667 9964 Dilesh Doshi (9122) 6667 9747 Bharati Ponda (9122) 6667 9943Kishor Binwal (9122) 6667 9989 Suniil Pandit (9122) 6667 9745Bhavin Shah (9122) 6667 9974Ashka Mehta Gulati (9122) 6667 9934 ExecutionArchan Vyas (9122) 6667 9785 Mayur Shah (9122) 6667 9945
Corporate Communications
Vineet Bhatnagar (Managing Director)
Jignesh Shah (Head – Equity Derivatives)
Automobiles
SECTOR SECTOR UPDATE
Disclosures and Disclaimers PhillipCapital (India) Pvt. Ltd. has three independent equity research groups: Institutional Equities, Institutional Equity Derivatives, and Private Client Group. This report has been prepared by Institutional Equities Group. The views and opinions expressed in this document may, may not match, or may be contrary at times with the views, estimates, rating, and target price of the other equity research groups of PhillipCapital (India) Pvt. Ltd.
This report is issued by PhillipCapital (India) Pvt. Ltd., which is regulated by the SEBI. PhillipCapital (India) Pvt. Ltd. is a subsidiary of Phillip (Mauritius) Pvt. Ltd. References to "PCIPL" in this report shall mean PhillipCapital (India) Pvt. Ltd unless otherwise stated. This report is prepared and distributed by PCIPL for information purposes only, and neither the information contained herein, nor any opinion expressed should be construed or deemed to be construed as solicitation or as offering advice for the purposes of the purchase or sale of any security, investment, or derivatives. The information and opinions contained in the report were considered by PCIPL to be valid when published. The report also contains information provided to PCIPL by third parties. The source of such information will usually be disclosed in the report. Whilst PCIPL has taken all reasonable steps to ensure that this information is correct, PCIPL does not offer any warranty as to the accuracy or completeness of such information. Any person placing reliance on the report to undertake trading does so entirely at his or her own risk and PCIPL does not accept any liability as a result. Securities and Derivatives markets may be subject to rapid and unexpected price movements and past performance is not necessarily an indication of future performance.
This report does not regard the specific investment objectives, financial situation, and the particular needs of any specific person who may receive this report. Investors must undertake independent analysis with their own legal, tax, and financial advisors and reach their own conclusions regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realised. Under no circumstances can it be used or considered as an offer to sell or as a solicitation of any offer to buy or sell the securities mentioned within it. The information contained in the research reports may have been taken from trade and statistical services and other sources, which PCIL believe is reliable. PhillipCapital (India) Pvt. Ltd. or any of its group/associate/affiliate companies do not guarantee that such information is accurate or complete and it should not be relied upon as such. Any opinions expressed reflect judgments at this date and are subject to change without notice.
Important: These disclosures and disclaimers must be read in conjunction with the research report of which it forms part. Receipt and use of the research report is subject to all aspects of these disclosures and disclaimers. Additional information about the issuers and securities discussed in this research report is available on request.
Certifications: The research analyst(s) who prepared this research report hereby certifies that the views expressed in this research report accurately reflect the research analyst’s personal views about all of the subject issuers and/or securities, that the analyst(s) have no known conflict of interest and no part of the research analyst’s compensation was, is, or will be, directly or indirectly, related to the specific views or recommendations contained in this research report.
Additional Disclosures of Interest: Unless specifically mentioned in Point No. 9 below: 1. The Research Analyst(s), PCIL, or its associates or relatives of the Research Analyst does not have any financial interest in the company(ies) covered in
this report. 2. The Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively do not hold more than 1% of the securities of the
company (ies)covered in this report as of the end of the month immediately preceding the distribution of the research report. 3. The Research Analyst, his/her associate, his/her relative, and PCIL, do not have any other material conflict of interest at the time of publication of this
research report. 4. The Research Analyst, PCIL, and its associates have not received compensation for investment banking or merchant banking or brokerage services or for
any other products or services from the company(ies) covered in this report, in the past twelve months. 5. The Research Analyst, PCIL or its associates have not managed or co‐managed in the previous twelve months, a private or public offering of securities for
the company (ies) covered in this report. 6. PCIL or its associates have not received compensation or other benefits from the company(ies) covered in this report or from any third party, in
connection with the research report. 7. The Research Analyst has not served as an Officer, Director, or employee of the company (ies) covered in the Research report. 8. The Research Analyst and PCIL has not been engaged in market making activity for the company(ies) covered in the Research report. 9. Details of PCIL, Research Analyst and its associates pertaining to the companies covered in the Research report: Sr. no. Particulars Yes/No
1 Whether compensation has been received from the company(ies) covered in the Research report in the past 12 months for investment banking transaction by PCIL
No
2 Whether Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively hold more than 1% of thecompany(ies) covered in the Research report
No
3 Whether compensation has been received by PCIL or its associates from the company(ies) covered in the Research report No4 PCIL or its affiliates have managed or co‐managed in the previous twelve months a private or public offering of securities for the
company(ies) covered in the Research report No
5 Research Analyst, his associate, PCIL or its associates have received compensation for investment banking or merchant banking or brokerage services or for any other products or services from the company(ies) covered in the Research report, in the last twelve months
No
Independence: PhillipCapital (India) Pvt. Ltd. has not had an investment banking relationship with, and has not received any compensation for investment banking services from, the subject issuers in the past twelve (12) months, and PhillipCapital (India) Pvt. Ltd does not anticipate receiving or intend to seek compensation for investment banking services from the subject issuers in the next three (3) months. PhillipCapital (India) Pvt. Ltd is not a market maker in the securities mentioned in this research report, although it, or its affiliates/employees, may have positions in, purchase or sell, or be materially interested in any of the securities covered in the report.
Suitability and Risks: This research report is for informational purposes only and is not tailored to the specific investment objectives, financial situation or particular requirements of any individual recipient hereof. Certain securities may give rise to substantial risks and may not be suitable for certain investors. Each investor must make its own determination as to the appropriateness of any securities referred to in this research report based upon the legal, tax and accounting considerations applicable to such investor and its own investment objectives or strategy, its financial situation and its investing experience. The value of any security may be positively or adversely affected by changes in foreign exchange or interest rates, as well as by other financial, economic, or political factors. Past performance is not necessarily indicative of future performance or results.
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Page | 12 | PHILLIPCAPITAL INDIA RESEARCH
SECTOR SECTOR UPDATE
Sources, Completeness and Accuracy: The material herein is based upon information obtained from sources that PCIPL and the research analyst believe to be reliable, but neither PCIPL nor the research analyst represents or guarantees that the information contained herein is accurate or complete and it should not be relied upon as such. Opinions expressed herein are current opinions as of the date appearing on this material, and are subject to change without notice. Furthermore, PCIPL is under no obligation to update or keep the information current. Without limiting any of the foregoing, in no event shall PCIL, any of its affiliates/employees or any third party involved in, or related to computing or compiling the information have any liability for any damages of any kind including but not limited to any direct or consequential loss or damage, however arising, from the use of this document.
Copyright: The copyright in this research report belongs exclusively to PCIPL. All rights are reserved. Any unauthorised use or disclosure is prohibited. No reprinting or reproduction, in whole or in part, is permitted without the PCIPL’s prior consent, except that a recipient may reprint it for internal circulation only and only if it is reprinted in its entirety.
Caution: Risk of loss in trading/investment can be substantial and even more than the amount / margin given by you. The recipient should carefully consider whether trading/investment is appropriate for the recipient in light of the recipient’s experience, objectives, financial resources and other relevant circumstances. PCIPL and any of its employees, directors, associates, group entities, or affiliates shall not be liable for losses, if any, incurred by the recipient. The recipient is further cautioned that trading/investments in financial markets are subject to market risks and are advised to seek trading/investment advice before investing. There is no guarantee/assurance as to returns or profits or capital protection or appreciation. PCIPL and any of its employees, directors, associates, group entities, affiliates are not inducing the recipient for trading/investing in the financial market(s). Trading/Investment decision is the sole responsibility of the recipient.
For U.S. persons only: This research report is a product of PhillipCapital (India) Pvt Ltd., which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S.‐regulated broker‐dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker‐dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances, and trading securities held by a research analyst account.
This report is intended for distribution by PhillipCapital (India) Pvt Ltd. only to "Major Institutional Investors" as defined by Rule 15a‐6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by the U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated, and/or transmitted onward to any U.S. person, which is not a Major Institutional Investor. In reliance on the exemption from registration provided by Rule 15a‐6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, PhillipCapital (India) Pvt Ltd. has entered into an agreement with a U.S. registered broker‐dealer, Decker & Co, LLC. Transactions in securities discussed in this research report should be effected through Decker & Co, LLC or another U.S. registered broker dealer. If Distribution is to Australian Investors This report is produced by PhillipCapital (India) Pvt Ltd and is being distributed in Australia by Phillip Capital Limited (Australian Financial Services Licence No. 246827). This report contains general securities advice and does not take into account your personal objectives, situation and needs. Please read the Disclosures and Disclaimers set out above. By receiving or reading this report, you agree to be bound by the terms and limitations set out above. Any failure to comply with these terms and limitations may constitute a violation of law. This report has been provided to you for personal use only and shall not be reproduced, distributed or published by you in whole or in part, for any purpose. If you have received this report by mistake, please delete or destroy it, and notify the sender immediately. PhillipCapital (India) Pvt. Ltd. Registered office: No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400013