Motilal Oswal neutral on Bharti, RCom; advices to buy Idea

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26 Aug, 2025 12:21

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Motilal Oswal has come out with its report on telecom space. According to the research firm, EGoM's recent decision of lowering the reserve price in only four circles does not indicate an accommodative government stance towards the industry, which is vital for the regulatory uncertainties to be resolved. Motilal has maintained neutral rating on Bharti Airtel, Reliance Communications (RCom) and buy on Idea Cellular.

• Some of the challengers expressed lower optimism on tariff hikes citing crowded industry structure.
• We believe that tariff increases by challengers would be necessary for sustained RPM improvement as industry leaders have clearly articulated their intention to protect market share.
• Our interactions suggest that the industry is witnessing some improvement in RPMs driven by withdrawal of promotions and free minutes etc.
• However, sustenance remains key due to prior experience of industry discipline not continuing.

• Participants discussed the significant amount of spectrum lying vacant with the government, which could be deployed for communication services.
• This has created an artificial spectrum scarcity and distorted its pricing. We believe sector could face a prolonged legal battle given divergent stance taken by the industry vs government/regulator.

• Most companies are bullish on data growth despite limited pick-up in 3G.
• Participants cited the J-curve; the data eco-system is taking time to develop but would eventually record robust growth and contribute meaningfully to financial performance.
• Recent performance suggests robust traffic/revenue growth in data, with traffic volumes during 2QFY13 growing by 22-26% QoQ for Bharti/Idea, thus driving 16-18% QoQ growth in data revenues.
• However, the overall contribution of data to wireless revenues remains relatively low at 5.2-5.4%. LTE - Immediate disruption unlikely
• LTE panel was represented by Bharti Airtel, Qualcomm and Tikona, among others.
• None of the companies (except Airtel in Kolkata, Bengaluru and Pune) have rolled out services despite successfully winning the BWA spectrum in 2010.
• 2G and 3G were proven technologies but not LTE. The allocated BWA spectrum (2.3GHz) is in a challenging frequency band. Some of the hurdles include 1) inability to penetrate thick walls, 2) challenges related to antenna and laying fiber and 3) nascent stage of the device eco-system.
• Participants believed that India's ~400,000 towers would be inadequate for LTE; LTE operators will need to rely on 'micro-cells' along with 'macro-cells'.

• EGoM's recent decision of lowering the reserve price in only four circles does not indicate an accommodative government stance towards the industry, which is vital for the regulatory uncertainties to be resolved.
• We expect incumbents to take legal recourse on renewal liability and proposed re-farming.
• Telecom stocks are trading at an EV/EBITDA of 7.3-7.8x FY13E and 5.7-6.9x FY14E ex-regulatory outlay.
• We maintain a Neutral rating on Bharti/RCom and Buy on Idea.

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