Summary
of Contents
PULSE TRACK
STOCK UPDATE
Bharti
Airtel Cluster: Apple Green Recommendation:
Buy Price target: Rs820 Current market price: Rs729
Vodafone deal to boost valuations
Key points
-
The entry of the global telecom giant Vodafone
into the Indian markets through the acquisition of a controlling
stake in Hutchison Essar Ltd (HEL) would result in a tougher
competitive scenario in the already crowded domestic telecom
service space.
-
The Vodafone deal values HEL at an enterprise
value (EV) of $18.8 billion and is at a steep premium to the
current valuations of Bharti Airtel Ltd (BAL) and Reliance
Communications (Rcom) in terms EV/earnings before interest, tax,
depreciation and amortisation (EBITDA). Consequently, it should
have a positive impact on the sector's valuations over the long
term and reflects the increasing confidence of global players in
the Indian telecom service market.
-
The Bharti group has been granted an option to
acquire the 5.6% direct stake held by Vodafone in BAL while
Vodafone would retain the 4.4% indirect stake (held in lieu of its
interest in a holding company) as a financial investor. The direct
stake of 5.6% has been offered to BAL at a consideration of $1.6
billion, which is at a 10-12% discount to the existing equity
value of BAL. The Bharti group is likely to utilise the acquired
stake to either enhance the free float (through placement to
institutional investors) or bring in a strategic partner (some
global telecom giant) that could support BAL to roll out 3G
services. Thus, the deal is a positive development for BAL from a
long-term perspective.
-
On the other hand, the deal is likely to have a
negative impact on Rcom. Especially since the acquisition of HEL
could have given Rcom the required head start in the GSM-based
wireless service space and also enabled it to emerge as the
largest telecom service operator in the country.
-
BAL continues to be our preferred pick in the
sector. We maintain our Buy call on the stock with a price target
of Rs820.
SECTOR UPDATE
Telecom
Ringing loud The upswing in the
Indian telecom industry continued as the industry added as many as
6.7 million users during January 2007 (a strong growth of 4.6% over
December 2006), taking the total user base to 153.2 million
users.
Both the GSM and the CDMA segments witnessed robust
growth in their subscriber add-ons. The GSM segment added 5.0
million subscribers during the month, taking the total GSM mobile
subscriber base to 110.4 million. The CDMA segment added 1.7 million
subscribers, marking a growth of 4.2% over December 2006, and taking
its user base to 42.7 million.
Cement
Cement majors report lacklustre
dispatches For the month of January, the cement majors
cumulatively reported a meagre growth of 2.8% year on year (yoy) at
59.4 lakh tonne on account of operations at near capacity levels.
Amongst the cement majors, Gujarat Ambuja
registered the highest growth of 6% yoy at 1.49 million tonne. ACC's
volumes stood flat at 1.64 million tonne whereas the AV Birla group
(Grasim + ltraTech) reported a meagre 3.09% year-on-year (y-o-y)
growth. |