Telecom sector update for Q1FY13 - Geojit BNP Paribas Financial Services

- Indian telecom stocks underperformed over the last year due to increased regulatory risks and EPS cuts driven by forex losses and higher tax outgo. Current downtrend in these stocks provided an attractive opportunity to get in.

- However, FY12 operating performance was healthy, especially for Idea Cellular, the top pick from the sector.

- It is expected that strong MOU (minutes of use) growth to continue and 3G tariff cut will spur data growth.

- The telecom sector is showing signs of consolidation with the top three operators ( Bharti, Idea and Vodafone) continuing to improve revenue market share (RMS). Consolidation is expected to accelerate as licenses are cancelled and the high spectrum prices hurting smaller operators disproportionately in the long run. Bharti, Idea and Vodafone are well positioned to benefit from consolidation.

- Retain positive view on sector but the target prices have been reduced on Bharti and Idea, as the higher regulatory costs are factored in.

- Target price for Bharti has been reduced to Rs.375 from Rs.400 earlier and that of Idea has been lowered to Rs.100 from Rs.120 earlier.

- It seems that TRAI recommended spectrum prices are exorbitant and it is expected to be moderated.

- Also expect delay in spectrum auction and further extension of the license cancellation deadline of August 1012.

- Revenue per minute is expected to remain flattish in the near term and to increase beyond next year.

Source : Equity Bulls

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