Equity research & portfolio investment in indian financial market telecom sector

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  • 1. Fundamental Analysis & Equity Research on Indian Telecom Sector Under the Guidance of: Dr.P.C.Sabharwal, Director, ASRM & Mr. Vikas Batra Organization Guide: Mr. Muneetpal Singh Presented By: Amit Kumar Bansal A4011309001 MBA(Rural Management ) This presentation is the property of UDAAAN Education Ventures Pvt. Ltd. and should not be copied, distributed or modified without prior permission 1
  • 2. About UDAAAN Education Venture Ltd.
    • UDAAAN Education Venture is a Private Limited Company registered in New Delhi, India in November 2009.
    • It has been co-founded by Alumni from Indian Institute of Management Calcutta, Faculty of Management Studies and Netaji Subhas Institute of Technology (NSIT).
    • UDAAAN aims to make Engineering/BCA/MCA & PGDM/MBA students an employable resource for the industry.
    • Its vision is to deliver highest quality of education in all spheres, in order to increasing needs of the students as well the corporates. 
    This presentation is the property of UDAAAN Education Ventures Pvt. Ltd. and should not be copied, distributed or modified without prior permission
  • 3. General Introduction to the Study
    • The study is about the introduction of Indian Telecom Sector, its history, market share of different companies & Merger & Acquisitions in Telecom Sector.
    • The study also focused on marketing strategies adopted by various companies such as Tariff war, New handset players & Dual SIM Phone.
    • The study analyzed the Technological Advancements in Telecom Sector such as 3 rd Generation, 4 th Generation, Mobile Number Portability(MNP), Value added Services(VAS).
    • Equity Analysis of Reliance Communication, Bharti Airtel, OnMobile Global Ltd.
    This presentation is the property of UDAAAN Education Ventures Pvt. Ltd. and should not be copied, distributed or modified without prior permission
  • 4. Objectives of the Study
    • To study the evolution & current status of Indian Telecom sector.
    • To study the market share, Mergers & Acquisitions of various Telecom companies.
    • To study the marketing strategies & trends in Technological advancements in Telecom sector.
    • To analyse the financial results of Reliance Communication, Bharti Airtel & OnMobile Global Ltd. based on Equity Analysis.
    This presentation is the property of UDAAAN Education Ventures Pvt. Ltd. and should not be copied, distributed or modified without prior permission
  • 5. Research Methodology
    • The study used Secondary data to accomplish these objectives. The secondary data has been collected from various published materials like Books, Brochures, Websites & Annual report of the Department/Companies.
    • For the Equity Analysis the study used Free Cash Flow to the Firm (FCFF) and Relative Valuation methods.
    This presentation is the property of UDAAAN Education Ventures Pvt. Ltd. and should not be copied, distributed or modified without prior permission
  • 6. Current Status of Indian Telecom Sector
    • The Indian telecommunication industry is one of the world's fastest growing industry, with 671.69 million telephone (landlines and mobile) subscribers and 635.51 million mobile phone/wireless connections as on June 2010, is the second largest telecommunication network in the world after China.
    • The overall Teledensity is 54.10 as on April 2010 .The urban telecom market is almost mature with a Teledensity of 122.39 as on April 2010 whereas there is a strong growth potential in the rural market which has a Teledensity of just 24.97 as on April 2010.
    • Telecommunications is the fourth highest recipient of foreign direct investment in India since April 2000 to May 2008 , attracting Rs 17,687 crores, or 6.37% , of total FDI inflows.
    • (Source: Department of Telecom, CNBC AWAAZ)
    This presentation is the property of UDAAAN Education Ventures Pvt. Ltd. and should not be copied, distributed or modified without prior permission
  • 7. History of Indian Telecom Sector
    • 1851 -First operational land line were laid by the British Govt. near Calcutta.
    • 1881-Telephone services introduced in India
    • 1883- Merger with the postal system.
    • 1947- Nationalization of all foreign telecommunication companies to form the Posts, Telephone and Telegraph(PTT).
    • 1985-Department of Telecommunications(DOT) established.
    • 1992-Private players allowed to enter value added services.
    • 1994-National Telecom Policy was formulated.
    • 1997-Independent regulator, Telecom Regulatory Authority of India(TRAI), established.
    • 2004 – Broadband policy.
    • 2009- FDI increased from 49% to 74%.
    • 2010 – 3 rd Generation/BWA auction.(Rs.67719 Cr/36000 Cr).
    This presentation is the property of UDAAAN Education Ventures Pvt. Ltd. and should not be copied, distributed or modified without prior permission
  • 8. Market Share of Telecom Companies(as on March 2010) This presentation is the property of UDAAAN Education Ventures Pvt. Ltd. and should not be copied, distributed or modified without prior permission
  • 9. Market Share of Telecom Companies(as on March 2010) This presentation is the property of UDAAAN Education Ventures Pvt. Ltd. and should not be copied, distributed or modified without prior permission
  • 10. Mergers & Acquisitions (M&A) This presentation is the property of UDAAAN Education Ventures Pvt. Ltd. and should not be copied, distributed or modified without prior permission Target Company Acquirer Sector Amount (US $ M) Stake Date Hutchisson Essar Vodafone Mobile Services 11100 67 Feb-07 Unitech Wireless Telenor Mobile Services 1430 67 Nov-08 Aircel Maxis Mobile Services 1080 100 Mar-06 BPL Communications Essar Group Mobile Services 1000 64 Jul-05 Idea Cellular Aditya Birla Group Mobile Services 990 48 Apr-06
  • 11. Bharti Airtel & Zain Deal (Biggest Deal in Telecom)
    • Bharti and Zain deal was of $10.7 billion dollars ,this deal made Bharti Airtel globally the fifth telecom company in whole world. This deal gave Bharti 42 million subscriber in 15 African countries.
    • Reason for Choosing Zain.
      • It gave Airtel to reach African market and giving Airtel a subscriber base of 42 million in 15 African countries.
      • This deal made Airtel the fifth largest telecom operator of the world.
    • Sources of Funds:
      • Took $7.5 billion loan from Standard Chartered bank
      • Took another $ 1 billion from SBI bank which is also called rupee –loan.
      • Rest of the loan was taken from eight other banks.
      • The loan has been given to Airtel at 1.9% interest.
    This presentation is the property of UDAAAN Education Ventures Pvt. Ltd. and should not be copied, distributed or modified without prior permission
  • 12.
    Marketing Strategies: Tariff war in Telecom Sector This presentation is the property of UDAAAN Education Ventures Pvt. Ltd. and should not be copied, distributed or modified without prior permission RELIANCE ( 2003 ) HUTCH TATA VIRGIN RELIANCE TATA DOCOMO UNINOR RELIANCE (SMS)
  • 13. Tariff War of Telecom Companies Contd…..
    • Reliance : Reliance Infocomm launched mobile services in India at 40 Paisa per minute fulfilling Dhirubai Ambani’s dream to make a phone call cheaper than a post card in 2003.
    • Hutch: Hutch (Vodafone now) launched the Chotta recharge voucher at Rs.10 when the lowest add-on recharge card available was about Rs 50.
    • Tata: Tata Indicom launched Non-stop mobile, a scheme where you don’t need to recharge for 2 years but still get free incoming calls. Soon other players responded to Tata Indicom’s plan and then come in plan by all major telecom players in India.
    • Virgin : Virgin Mobile jumped into the competitive Indian mobile telecom market with the breakthrough-marketing scheme, Get paid for incoming calls. 10 Paisa free for every minute of incoming call.
    • Reliance GSM : Reliance Communication launched its GSM services in Mumbai offering subscribers Rs 10 talk-time every day for the first 90 days.
    • Tata DoCoMo: Tata DoCoMo started the pay per-second tariff plan.
    • Uninor: Uninor, the joint venture of realty major Unitech Ltd and Norway's telecom giant Telenor, fuelled a new tariff war by introducing rates as low as 20 paisa per minute.
    • Reliance : Under the Simply Unlimited CDMA Offer, Rcom launched two calling packs - one local, and the another national. The unlimited local call pack will come at a monthly fixed charge of Rs 299, while the unlimited STD calls will come for a monthly tariff of Rs 599.
    This presentation is the property of UDAAAN Education Ventures Pvt. Ltd. and should not be copied, distributed or modified without prior permission
  • 14. Marketing Strategies
    • Entry of New Handset Players:
      • The handset market growth rate is around 6% in India
      • 48 handset manufacturers are there in India.
      • New handset players are offering different features at lower prices .
    • Impact of Dual SIM Phone:
      • Dual SIM phone market growth rate is around 47% in India.
      • It gives the freedom of carrying two phone.
      • Subscribers take dual SIM phone to take advantage of price arbitrage.
    This presentation is the property of UDAAAN Education Ventures Pvt. Ltd. and should not be copied, distributed or modified without prior permission
  • 15. Business & Marketing strategies
    • Mobile Virtual Network Operator(MVNO)
    • A mobile operator that does not have its own spectrum and usually does not have its own network infrastructure. Usually they buy minutes of use from the licensed telecom operator and then resell minutes of usage to their customers .
    • An example for MVNO is Virgin Mobile. Virgin Mobile is a mobile phone service provider operating in the UK, Australia and Canada, and the US. The company was the world's first Mobile Virtual Network Operator, launched in the UK in 1999. It does not maintain its own network, and instead has contracts to use the existing network(s) of other providers.
    • Currently MVNOs are emerging in fast pace in European markets and beginning in USA also. Slowly MVNO phenomenon is catching up in Asia and other parts of the world.
    This presentation is the property of UDAAAN Education Ventures Pvt. Ltd. and should not be copied, distributed or modified without prior permission
  • 16. Technological Innovations: 3 rd Generation Mobile Phone
    • 3G is the third generation of mobile phone standards and technology. 3G supersedes 2G technology and precedes 4G technology. 3G technologies enabled faster data-transmission speeds, greater network capacity and more advanced network service
    • Major sources of revenue –
      • Data transfer,
      • Value Added Services(VAS)
    • Existing 3G markets:
      • Japan, Korea, Germany, Italian
    • 4 th Generation (4G):
      • 4G is the short name for fourth-generation wireless, the stage of broadband mobile communications that will super cede the third generation (3G ).
      • 4G is being developed the quality of service and rate requirements set by further development of existing 3G applications like mobile broadband access, Multimedia Messaging Services (MMS), video chat, mobile TV etc.
    This presentation is the property of UDAAAN Education Ventures Pvt. Ltd. and should not be copied, distributed or modified without prior permission
  • 17. Technological Innovations: Mobile Number Portability(MNP)
    • Definition - A regulated facility which enables mobile subscribers to change their network service provider while keeping their existing mobile number.
    • Evolution of MNP :
    This presentation is the property of UDAAAN Education Ventures Pvt. Ltd. and should not be copied, distributed or modified without prior permission
  • 18. Mobile Number Portability Contd…..
    • Costs Associated with MNP
    • Direct costs:
    • Fixed set-up costs
    • Variable porting costs
    • Indirect cost:
    • Loss of tariff transparency.
    • Benefits of MNP
      • Consumer benefits
      • At the individual subscriber level, the biggest impact to changing phone numbers is not to the subscriber, All unnecessary burdens of updating written address books, changing programmed contacts lists, remembering the new number are removed.
    This presentation is the property of UDAAAN Education Ventures Pvt. Ltd. and should not be copied, distributed or modified without prior permission
  • 19. Technological Innovations & Marketing Strategies: Value Added Services by Different Companies
    • Services which are not part of voice data but are available separately, so that different operators can be differentiated on the base of these value added services.
    This presentation is the property of UDAAAN Education Ventures Pvt. Ltd. and should not be copied, distributed or modified without prior permission
    • The non- voice value added services:
    • SMS,
    • MMS,
    • E-MAIL,
    • Taking part in the contests in TV through SMS,
    • Cricket & games,
    • Opinion polls,
    • Quiz/ contests.
    • Pure voice based Value added services:
    • (Available in both landline and mobile telecom system)
    • In a landline- voice based ringtone download facility,
    • Tele-horoscope/Tele- astrology,
    • Music -on- demand,
    • News -on –demand,
    • Subscribe Bollywood clips & ringtones.
  • 20. Equity Analysis of Reliance Communication
    • Revenue Mix Cost Factors
    • Source: Reliance Communication
    This presentation is the property of UDAAAN Education Ventures Pvt. Ltd. and should not be copied, distributed or modified without prior permission Revenue (in %) Wireless 69% Broadband 9% Global 18% Investment 2% Others 2% Cost Factor (in %) Access Charges 59% Provision for employees 11% Commission to non executives 1% Sales & administrative exp. 29%
  • 21. RCOM USP & Marketing Strategies
    • Unique Selling Proposition(USP):
      • Network superiority.
      • Brand .
      • Channel strength.
      • Customer service excellence.
    • Marketing Strategies:
      • Campaign like “ kar Lo Duniya Mutthi mein”, “Go Color” and “ Bas Button Dabao”.
      • Cheapest handset.
      • Cheapest Tariff.
    • I:UDAAANReliance communication Valuation.xls
    This presentation is the property of UDAAAN Education Ventures Pvt. Ltd. and should not be copied, distributed or modified without prior permission
  • 22. This presentation is the property of UDAAAN Education Ventures Pvt. Ltd. and should not be copied, distributed or modified without prior permission Current market Price (CMP) As on (22/06/2010) Rs.189.3 Target Price Rs.171.02 BSE Code 532712 NSE Code RCOM Market Capital Rs.38081.3Crore Face Value Rs.5 Equity Capital Rs.1032.01Crore No. of Equity shares Result 206.39Crore Overvalued
  • 23. Bharti Airtel This presentation is the property of UDAAAN Education Ventures Pvt. Ltd. and should not be copied, distributed or modified without prior permission Current market Price As on (22/06/2010) Rs.268.4 Target Price Rs.425.29 BSE Code 532454 NSE Code BHARTIARTL Market Capital Rs.100577.58Crore Face Value Rs.5 Equity Capital Rs.1898.7Crore No. of Equity shares Result 3794Millions Undervalued (in Rs. Million) 2009 2010 2011(E) 2012(E) Net Sales 369615 396150 467457 537576 EBIT 151678 160268 191657 220406 Net Profit 84699 91026 121101 160585 EPS(in Rs) 22.32 23.99 31.91 42.32
  • 24. OnMobile Global Ltd. This presentation is the property of UDAAAN Education Ventures Pvt. Ltd. and should not be copied, distributed or modified without prior permission Current Market Price (CMP) As on (22/06/2020) Rs.297.45 Target Price Rs.269.07 BSE Code 532944 NSE Code ONMOBILE Market Capital Rs.1740.58Crore Face Value Rs.10 Equity Capital Rs.58.5Crore No. of Equity Shares Result 585Lakhs Overvalued
  • 25. OnMobile Global Ltd. Contd…….. This presentation is the property of UDAAAN Education Ventures Pvt. Ltd. and should not be copied, distributed or modified without prior permission (in Rs. Lakh) 2009 2010 2011E 2012E Net Sales 40636 45440 57527.04 69722.7 EBIT 12813 8311 17231.3 20884.3 Net Profit 8520 4235 10692.24 13710.3 EPS(in Rs.) 14.56 7.24 18.28 23.43 Source: OnMobile
  • 26. Investment Decision based on Equity analysis
    • The Study found that it would be irrational decision to invest in RCOM & OnMobile as they are Overvalued.
    • The Study suggest that Investment in Bharti Airtel is Profitable for investor as the Share price is Undervalued.
    This presentation is the property of UDAAAN Education Ventures Pvt. Ltd. and should not be copied, distributed or modified without prior permission
  • 27. Conclusions
    • India is the fastest Growing Telecom Market in the World.
    • Bharti Airtel is the Leading Telecom Company in India.
    • Mobile Number Portability will change Market & ensure improved standards of services.
    • Bharti Airtel is undervalued whereas OnMobile Global & Reliance Communication is overvalued.
    This presentation is the property of UDAAAN Education Ventures Pvt. Ltd. and should not be copied, distributed or modified without prior permission
  • 28. References
    • Books
    • Damodaran on Valuation, 2 nd edition, Security Analysis for Investment and Corporate Finance.
    • Dun & Bradstreet, Equity research & Valuations.
    • Ulrich Loosen, Portfolio Strategies of Private Equity firms
    • Websites
    • www.trai.gov.in
    • www.dot.gov.in
    • www.airtel.in
    • www.rcom.co.in
    • www.onmobile.com
    • www.moneycontrol.com
    • www.economywatch.com
    • www.coai.in
    • www.business-standard.com
    • www.angelbroaking.com
    • www.indiabulls.com
    • www.investopedia.com
    This presentation is the property of UDAAAN Education Ventures Pvt. Ltd. and should not be copied, distributed or modified without prior permission
  • 29. 10/01/10 This presentation is the property of UDAAAN Education Ventures Pvt. Ltd. and should not be copied, distributed or modified without prior permission