Indian Telecom Sector Analysis

From Mobile phones to
Smartphones and single SIM
to Multi SIM, we all have
witnessed 2G, seamless
talking at cost of paise, 3G,
from voice to text, SMS to
APP and now 4G.
Sim-Sim saga
With increase in earning people started to
spend on Phone and used to apply for
landline connection. Earlier with held with
govt. entity BSNL ; later opened up for
other private players. Bharti Airtel entered
into the market and still in this segment.
Later Reliance & Tata also came up.
PCOs & Landline Phones
Only from VVIP offices to all govt. offices and then to
public via PCO telephone started its journey of
connecting India.
After 1947 (Govt. Office & PCOs)
 1851: First operational landlines
were laid by British for their work.
 1881: Telephone service launched.
 1932: Formed Indian Radio and Cable
Communication Company (IRCC)
Before 1947
The
Sunrise
Dawn
Beyond
Night
Dark
Age
Time Line: Inception to Present
cv
Present
The
Glowing
Sun
Indian Telecom Industry - ConnectingIndiatogrowth…
In new Millennium a transition took place: from wire to wireless and the game changed
forever. Soon deregulated and attracted a lot of private players. In fact even changed the
fixed line to get a wireless version. CDMA was also quite popular in this domain with GSM
Mobile

Spotlight on India’s Digital Highway
FUTURE

Spotlight on India’s Digital Highway

Indian Telecom Industry - ConnectingIndiatogrowth…Source: FICCI & EY report on Speeding ahead on the Telecom and digital economy highway

Overview of Indian Telecom Sector

Telecom Players
Mobile
(Wireless)
Fixed Line
(Wireline)
Internet
Services
Comprises establishments operating and maintaining switching and
transmission facilities to provide direct communications via airwaves
Consists of companies that operate and maintain switching and
transmission facilities to provide direct communications through landlines,
microwave or a combination of landlines and satellite link-ups.
Includes Internet Service Providers (ISPs) that offer broadband internet
connections through consumer and corporate channels
Source: TechSci Research

Overall Subscriber Base & Teledensity
Subscriber Split
Gross revenue from telecom services in India
The Indian telecom market started with Wired & Urban but is
growing in Wireless & Rural market. By this time roughly 42%
market belongs to rural area where wireless dominates like
anything. The major presence wireline is in Urban areas only.
The wireless segment has 22 circles and each circle acts as a
different market having different leader.
58%
42%
Urban Rural
Source: TRAI

While Bharti Airtel dominates wireless segment…
…BSNL dominates fixed-line segment
60%
14%
14%
7%
4%1%
BSNL MTNL Bharti Tata Reliance Others
Source: TRAI as Sep-2015.
24%
19%
17%
11%
8%
8%
6%
5%2%
Bharti Vodafone Idea Reliance Aircel
BSNL Tata Telewings Others
Bharti Airtel is the market leader in wireless which is followed by
vodafone & idea. The good thing is that this segment is growing also re-
innovating with the advent of newer technology. The competition is
intense in this category and no one can take consumers for granted
cause with Mobile number portability (MPN) the switching cost has
reduced to negligible in this segment.
This market is shrinking; as consumers are getting better facilities that
too at a cheaper cost in wireless; so despite being Leader in fixed line
segment BSNL would like to grow bigger in wireless market while
defending its own fort profitably.

Role of ICT in Economic Development
Source: FICCI report on Telecom & Team LG analysis, BMU.

Growth Drivers & Industry Analysis

Increasing
Investment
Policy SupportGrowing Demand
Growth Drivers
Invites Results in
Higher real income
and changing
lifestyles
Growing young
population
Increasing Data
Usage & Minutes
Of Use (per month
per subscriber)
Reduction in
license fee
Relaxed
FDI Norms
Encourages
firms to expand
to rural areas
Higher FDI inflows
Increasing M&A
activity
Note: M&A - Merger and Acquisition
FDI: Foreign Direct Investment

Growth Drivers
Rising Income
 Incomes have risen at a brisk pace in India and will continue rising given the country’s strong economic growth prospects.
 Increasing income has been a key determinant of demand growth in the telecommunication sector in India
 The IMF estimates nominal per capita income to expand at a CAGR of 5.43 per cent over 2010–19 Per capita income is
expected to expand at a CAGR of 7.8 per cent for the period 2015-19
Increasing Income in
Rural Market
• The emergence of an affluent middle class is triggering demand for the mobile and internet segments
• A young, growing population is aiding this trend (especially demand for smart phones)
Increasing Internet
Revenues
• The Mobile Value Added Services (MVAS) industry is forecast to expand at a CAGR of 30.93 per cent to USD9.5 Billion by 2015 from USD1.1
billion in 2007
• The share of non-voice revenues, which currently stands at around 10 per cent of telecom operators’ revenues, is estimated to rise to more
than 30 per cent in the next five to seven years
• A decline in the prices of smartphones and data subscription rates is likely to drive demand for MVAS
Relaxed FDI norms
• FDI cap in the telecom sector has been increased to 100 per cent from 74 per cent; out of 100 per cent, 49 per cent will be
done through automatic route and the rest will be done through the FIPB approval route
• FDI of up to 100 per cent is permitted for infrastructure providers offering dark fibre, electronic mail and voice mail
Reduction in License
Fees
• In January 2015, the Government of India recommended reduction in license fees of telecom operators by 6 per cent, telecom
operators currently pay 8 per cent of adjusted gross revenue as license fee
• The issuance of several international and national long-distance licenses has created opportunities and attracted new
companies into the market
Enhanced Spectrum
Limit
• The prescribed limit on spectrum would be increased from 6.2MHz to 2x8 MHz (paired spectrum) for GSM technology in all
areas other than Delhi and Mumbai, where it will be 2x10MHz (paired spectrum)
• Telecom players can, however, obtain additional frequency; there will be an auction of spectrum subject to the limits
prescribed for the merger of licenses Indian Telecom Industry - ConnectingIndiatogrowth…Source: IBEF report & Team LG analysis, BMU.

Telecom Industry Analysis
Threat
Weakness
Strength
Opportunity
Bargaining Power
of Customers
Bargaining Power
of Suppliers
Threat
of
New
Entrants
Threat
of
Substitute
Products Competitive
Rivalry
Indian Telecom Industry - ConnectingIndiatogrowth…Indian Telecom Industry - ConnectingIndiatogrowth…

Telecom Industry: Porter Five Forces Analysis
Bargaining Power
of Customers
Bargaining Power
of Suppliers
Threat
of
New
Entrants
Threat
of
Substitute
Products
Competitive
Rivalry
(HIGH)
High
High
LowLow
Competitive Rivalry [HIGH]
 Customers’ low switching cost and price sensitivity are increasing competition
among players.
 High exit barriers are also intensifying competition.
 There are around 6 to 7 players in each region, leading to intense competition.
Threat of New Entrants
 Strict government regulations
 Extremely high infrastructure setup
cost
 Difficulty in achieving economies of
scale
Suppliers Power
 High bargaining power of suppliers
as there are just a few suppliers in
the sector
 High cost of switching suppliers
Substitute Products
 Hardly any threat of substitute
products as there is no substitute
available in the market
Customers Power
 Low switching cost and mobile
number portability give customers
high bargaining power
 Customers are price sensitive

Telecom Industry Analysis- Internal Factors
 High Cost of Infrastructure: The infrastructure cost
of telecom industry is very high.
 Low customer retention power: The customer
retention power for telecom industry is really low
and the customer changes their service provider
company very soon.
WeaknessStrength
 Technology is advanced and easy to implement: For
telecom industry the technology is really advanced and
more and more investment is done on technology to get
world.
 Compatibility with advancement of all fields of new
technology entering in every aspect of life whether its
entertainment, travel, communication, shopping.

Telecom Industry Analysis- External Factors
 Main activities might shift due to advancement in
VoIP and app based chat & call communication.
 Regulation & Corruption if get nexuses then can go
on a big toss.
 Be aware for myopic vision cause swiftly changing
technical horizon.
ThreatOpportunity
 Growing Demand and working in tandem with the
technical advancement.
 Internet of Things (IoT) & Machine 2 Machine (M2M),
cloud (IaaS, PaaS, SaaS, NaaS, CaaS ) growth and MVAS
growth. Is availng ample of opportunities for telecom
players.
IaaS- Information as a Services
PaaS- Platform as a Service
SaaS- Software as a Service
NaaS- Network as a Service
CaaS – Communication as a Service
Terminologies:
| IoT- Internet of things
| M2M- Machine 2 Machine | VoIP- Voice over Internet Protocol

Key Players & Their Information

Bharti Airtel
Company Overview
 Bharti Airtel was set up in 1995 and is the leading mobile operator in
the world with presence in 20 countries
 It is the leading mobile operator in India , with a customer base of 235.2
million as of September 2015
 4th largest telecom operator in the world
 CAGR of Revenues is increased by 13.3 per cent.
Management Key Shareholders
Stock Price Performance
Key Valuation Metrics
Key Financials Value Generation
Indian Telecom Industry - ConnectingIndia to growth…
 Market Price (11/02/2016) 308.60
 52 Week High 452.45
 52 Week Low 282.30
 P/E Ratio 22.64
 Market Capitalization 1233160
 Enterprise Value 2060000
 EV/Revenue 2.18x
 EV/EBITDA 6.28x
 Revenue 554964
 EBITDA 246241
 Margin 44.37%
 NI Avl to Shareholder 170644
 Margin 30.75%
 EPS 13.63
 Sunil Bharti Mittal Chairman
 Gopal Vittal MD & CEO
 D K Mittal Director
 Rakesh Bharti Mittal Non-Ex Director
 Promoter and Group 65.45%
 Institutions 25.60%
 Non-Institutions 8.95%
Wire
less
62%
Fixed
Line
1%
Broad
band
37%
Note: All data in INR million except share data, percentage values or margin & Ratio.
Source for information: BSE, Yahoo Finance & Annual Reports of the company.
CompanyBSE Key Development &
Success Strategies
 Defending the leader position from challengers like vodfone & idea by
aggressive marketing and gaining first mover advantage like in case of 4G
services.
 Also betting high by tapping Africa for huge growth potential.
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Reliance Communication
Company Overview
 Reliance Communications (Reliance Group's flagship company) is India's
foremost and truly integrated telecommunications service provider.
 Reliance Communications has established a pan-India, next generation,
integrated, convergent digital network
 Reliance Communications owns and operates the world's largest next
generation IP enabled connectivity infrastructure
 Anil Dhirubhai Ambani Chairman
 Deepak Shourie Director
 R N Bhardwaj Director
 J Ramachandran Director
 A K Purwar Director
 Market Price (11/02/2016) 52.10
 52 Week High 91.80
 52 Week Low 45.65
 P/E Ratio 17.69
 EV/EBITDA 7.40x
 Revenue 218150
 EBITDA 73740
 Margin 33.80%
 Margin 3.36%
 EPS 2.95
Wireless
66%
Fixed
Line
1%
Broad
band
33%
Success Strategies
 With Collaboration to Reliance Jio 4G services one needs to look
carefully about this company though prima facie the move seems to be
positive and can turn the fortunes around or not is to be answered best
by the time only.
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Company Overview
 Aditya Birla Group Company - Idea Cellular is India's first truly MNC
 Idea is 3rd largest mobile operator in India
 Offering of customized product for segmented customers is being
pioneered by Idea
 In 2011 & 2012, Idea has won the ‘Best Brand Campaign’ at the
esteemed World Communication Awards
 Idea is being preferred by every 4th mobile user who exercises choice
through MNP
Idea Cellular
 Market Price (11/02/2016) 100.85
 52 Week High 203.90
 52 Week Low 97.55
 P/E Ratio 10.57
 EV/EBITDA 6.17x
 Revenue 348700
 EBITDA 121670
 Margin 34.89%
 Margin 9.88%
 EPS 9.54
 Kr. Mangalam Birla Non-Ex Chairman
 Rajashree Birla Non-Ex Director
 Sanjeev Aga Non-Ex Director
 Himanshu Kapania MD
 R C Bhargava Independent Director
 Non-Institutions 28.34% Wireless
64%
Fixed
Line
0%
Broad
band
36%
CompanyBSE
Key Development &
Success Strategies
 Targeting niche circles and gained the leader position in them like
Madhya Pradesh & Chhattisgarh Circle.
 Also launched 4G and challenging the leader. Comes in TOP 3 in almost
major circles.0.00%
50.00%
100.00%
150.00%
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TATA Communication
Company Overview
 TATA Communication (TATA group flagship company) is a global
company with its roots in the emerging markets.
 Largest wholesale voice carrier carrying 53 billion minutes of wholesale
voice traffic annually – that’s 1 in 10 voice calls globally
 The company has led from the front in ensuring a robust digital
ecosystem that is equipped for the future
 The company’s enhanced business strategy has the consumer’s
requirements, trends and movements at the heart of everything it does.
 Central Govt. 26.12%
 Bodies Corporate 48.87%
 Market Price (11/02/2016) 361.45
 52 Week High 504.90
 52 Week Low 336.30
 P/E Ratio N/A
 EV/EBITDA 7.33x
 Revenue 183220
 EBITDA 24790
 Margin 13.53%
 NI Avl to Shareholder (513.20)
 Margin (0.28%)
 EPS (6.49)
 Subodh Bhargava Chairman
 Gopichand Katragadda Director
 Kishor A Chaukar Director
 N Srinath Director
 Vinod Kumar MD & CEO
Wire
Less
96%Fixed
Line
4%
CompanyBSE
Key Development &
Success Strategies
 Collaboration has been the strategy which gave a huge inorganic growth
to Tata. Coming together with DoCoMo the Japanese giant gave the
much needed foothold in wireless. The duo together have been
disruptive in terms of changing the game rules to per second but its
struggling at the moment and is out of top 5 though the companies
above are not publically listed .0.00%
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100.00%
150.00%
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MTNL
Company Overview
 Mahanagar Telephone Nigam Limited (MTNL) was created by the
Government of India in 1986 to oversee the telephone services of Delhi
and Mumbai
 MTNL is is a state-owned telecommunications service provider
 The motto of the company is "Transparency makes us different"
 Central Govt. 100%
 Market Price (11/02/2016) 16.30
 52 Week High 30.85
 52 Week Low 14.45
 P/E Ratio N/A
 Enterprise Value (7890)
 EV/Revenue N/A
 EV/EBITDA N/A
 Revenue 34970
 EBITDA (6580)
 Margin (18.82)%
 NI Avl to Shareholder (29010)
 Margin N/A
 EPS (46.05)
 Narendra Kr. Yadav Chairman & MD
 Sunil Kumar Director – HR
 P K Purwar Director - Finance
 Simmi R Nakra Director
 Shashi Ranjan Kr. Director (Govt.)
Wireless
39%Fixed
Line
61%
Success Strategies
Operates in Delhi & Mumbai only while the shares are held by Central Govt. only
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Note: All key financials are as of 31st Dec, 2015 for all of the companies taken at ttm.
(Trailing Twelve Months)

Companies Logo or SIM Listed in Market Share Business Description
Vodafone Nasdaq , LSE 18.88%
(Wireless)
0.35% (Fixed
line)
19.70% (Internet)
Vodafone is 2nd Highest in Wireless
subscription. Vodafone have Broadband and
mobile (GSM) in 22 circles
BSNL Not Listed 8.00% (Wireless)
60.28% (Fixed
line)
16.20% (Internet)
BSNL has having highest market share in
Fixed line connections.
Fixed-line and mobile telephony (GSM
– outside Delhi and Mumbai), data and
Internet in 22 circles
Aircel Not Listed 8.43% (Wireless) Aircel is the cheapest call rate provider in
the telecom sector. Aircel has its presence
in all the major cities in the country. Major
player in south.
Other Key Players

P/E
17.69
10.57
22.64
0 10 20 30
A
T
I
M
R
N/A
EV/ NIAS
74.6
21.8
-354
12.07
-400 -200 0 200
A
T
I
M
R
N/A
EV/ EBITDA
7.4
6.17
7.33
6.28
0 5 10
A
T
I
M
R
N/A
PLAYER
Stock Price
11 Feb’16 (INR)
Market CAP
(INR Mn)
Enterprise Value
(INR Mn) Revenue EBITDA NI Avl to Shareholder
P/E
AIRTEL (A) 308.60 1233160 2060000 2.18 6.28 12.07 22.64
TATA (T) 361.45 103010 18170 0.99 7.33 -354.05 N/A
IDEA (I) 100.85 362890 751140 2.15 6.17 21.8 10.57
MTNL (M) 16.30 9770 (7890) N/A N/A N/A N/A
RELIANCE (R) 52.10 129680 546050 2.50 7.40 74.6 17.69
Enterprise Value/
Trading Comparable – (1/2)
EV/ Revenue
2.5
2.15
0.99
2.18
0 1 2 3
A
T
I
M
R
N/A
N/A

PLAYER
Enterprise Value/ Revenue P/E
FY13 FY14 FY15 FY13 FY14 FY15
AIRTEL 2.42 2.3 2.03 2.32 2.11 1.74
TATA 1.53 2.27 2.00 18.53 23.09 18.36
IDEA 2.9 2.57 1.71 67.55 30.22 18.41
MTNL 3.54 4.54 5.22 -0.17 0.22 -0.48
RELIANCE 2.42 2.27 3.38 42.98 22.44 -142.26
EV/ Revenue Multiples P/E
Trading Comparable – (2/2)
0
1
2
3
4
5
6
FY 13 FY 14 FY 15
AIRTEL
TATA
IDEA
MTNL
RELIANCE
-200
-150
-100
-50
0
50
100
FY 13 FY 14 FY 15
AIRTEL
TATA
IDEA
MTNL
RELIANCE

Financial Benchmarking - Key Ratios…
EBITDA & EBITDA Margin
Airtel !dea Reliance Tata MTNL
Revenue
554964
312794.7
108010
43193.5 34000.8
EBIT & EBIT Margin
Debt /Equity Ratio
0.26 0.74 0.76
0.06
8.03
Net Debt/EBITDA
0.807 1.443 5.362 0.213
-54.353
246241
101257.5
49600
17474.6
-3041.9
170644
52707.4
-2840
10285.2
-14627.8
44.37%
32.37%
45.92%
40.46%
-8.95%
30.75%
16.85%
-2.63%
23.81%
-
43.02%
Note: All values in INR Million except ratio & % age. As of 31st March, 2015.

Components Coefficients Standard Error T-Stat P-value
AIRTEL 0.1094 0.0679 1.6127 0.1147
RELIANCE 0.0784 0.0290 2.7021 0.0101
IDEA -0.0536 0.06927 -0.7742 0.4434
Tata 0.1642 0.0436 3.7679 0.00053
MTNL 0.0383 0.0255 1.4998 0.1415
Indian Telecom Industry - Connecting India to growth…
Regression Analysis…
Regression Statistics
Multiple R 0.760045
R Square 0.577669
Adjusted R Square 0.524878
Standard error 0.028055
Observations 46
0.00%
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200.00%
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Airtel Rcom Idea TATA MTNL
0.00%
50.00%
100.00%
150.00%
200.00%
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Airtel Rcom Idea TATA MTNL BSE

Flow of Foreign Investments (FDI) in Telecom Sector
9872.49 10,589.27
12,552.19 12,856.06
14,163.01
17,058.03 17,717.00
FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16*
Source of Deals : Thomson Banker, Deal Tracker, Grant Thornton, TechSci Research Indian Telecom Industry - ConnectingIndiatogrowth…
Target Acquirer Acquisition price (USD million) Division acquired
MTS Reliance Communication (2015) 736.98 8 – 10 per cent stake
Augere Wireless Bharti Airtel (2015) 21.3 million 100 per cent stake
Bharti Airtel SingTel(2013) 302 Increases stakes to 32.34 per cent
Bharti Airtel Qatar Foundation Endowment(2014) 1,260 PE deal – 5 per cent stake
Vodafone India Ltd Vodafone International Holdings (2014) 1,641 Increases stakes to 100 per cent
Note: *FY16 - Data mentioned is from April 2000 – September 2015
Source of FDI: Department of Industrial Policy & Promotion, TechSci Research
As FDI is flowing it is resulting in expansion and
growth strategies of leading players. Here’s the
FDI flow in million USD and few recent deals are
Given. Apart from these in 2015, New Call Telecom
has announced to invest USD300 million in India
within next 12-18 months. The company has
decided to invest in India to increase its presence.
Along with investments, New Call Telecom has
already acquired Nimbuzz (global mobile
technology brand) and New Delhi based Ozone
networks.

Road Ahead: Strong Policy Support to Sector’s Development
4G launch by players :Reliance Jio, Aircel, Vodafone, Bharti Airtel & idea is bringing the next generation of telecom.
As IoT & M2M are the hot trends resulting is increasing revenue to the sector.
Increasing use of Cloud including CaaS (Communication-as-a-Service) and MVAS is going to draw more revenues.
Rather than call internet market has much higher potential to grow in the country especially with 4G connectivity.
Smart phones are getting better & better; which indeed will require more better network support like Airtel says :
The smartphone network, which indeed is going to increase Minutes of Use per user per month & data usage.
As shown in the beginning India is building digital highway the prospects of the sector looks bright.

Thank You!!
Lalit Kumar Yadav & Gautam Shah

Indian Telecom Sector Analysis

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