Motilal Oswal remains neutral on Reliance Communication

Motilal Oswal has come out with its report on telecom space. The research firm is neutral on Reliance Communication.

Outlook on Telecom space:

• Draft New Telecom Policy (NTP) 2011 did not provide details on critical issues like 2G spectrum allocation, pricing, M&A rules & exit policy. Spectrum issues are proposed to be addressed through a separate Spectrum Act.
• Indian wireless sector added 7.5m subscribers in Aug-11 (down 59% YoY but up 12% MoM). Subscriber base reached 866m,up 1% MoM and 29% YoY. Idea reported the highest net additions; Videocon and S-Tel witnessed negative net additions.
• INR depreciation will result in mark-to-market losses for wireless companies in 2QFY12 due to forex denominated debt and creditors. At USD/INR of ~49 we expect derivative and exchange fluctuation loss of INR5-6b for Bharti and INR0.3-0.4b for Idea.
• Bharti has been awarded 2G and 3G licenses for Rwanda and would be investing ~US$100m over next three years in the venture.
• Reiterate Buy on Bharti/Idea with a price target of INR530/140. We expect EBITDA CAGR of 25% for Bharti and 39% for Idea over FY11-13.
• We remain Neutral on RCom due to high leverage, regulatory overhang, and continued pressure on revenue market share.

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