October 16, 2017
Research Analysts
Dharmesh Shah [email protected] Pabitro Mukherjee [email protected]
Nitin Kunte, CMT [email protected] Vinayak Parmar [email protected]
Dipesh Dagha [email protected]
Gladiator Stocks – Telecom Thematic
Scrip I-Direct Code Action Target Stoploss Upside
Bharti Airtel BHAAIR Buy in the range of 420.00-432.00 495.00 390.00 16%
Idea Cellular IDECEL Buy in the range of 76.00-80.00 96.00 68.00 23%
Time Frame: 6 Months
2
Deal Team – At Your Service
The consolidation in Telecom industry is a much needed boost considering the:
• Fragmented industry with over 6-7 players in each circle leading to perennial competition over price/customer churn and affecting the quality as well – the
ARPUs have remained stagnant for the industry over the last decade
• General nature of industry which entails higher capex (both in terms of capex as well network deployment/expansion) which has led to leverage of players (more
so for smaller players) inching up sharply).
• Most importantly, Price competition from newcomer Jio who has already spent over ~| 1.5 lakh crore to build up a comparable 4G network
The consolidation in the industry already visible with:
• Fringe players such as Videocon, Tikona and Telenor selling their spectrums to Bharti in order to exit the sector
• Talks of government owned BSNL and MTNL also mulling to merge in order to create network efficiencies as well as other cost synergies.
• Merger of Idea – Vodafone to create the largest entity in Indian telecom industry
• Acquisition of Tata Teleservices’ wireless business by Airtel
Industry consolidation largely done
We reiterate that our belief that the Indian telecom industry would eventually transition from seven to nine players to an optimum three to four players, seems to
have fructified. All marginal, troubled players like Videocon, Telenor, Tata Tele, etc, (with exception of RCom, Aircel) have finally exited given lack of viability sans a
considerable scale. We note that consolidation would also bring in some pricing discipline gradually in the sector once the challenger Jio garners a considerable
subscriber/revenue base and would benefit all players, including Airtel and Idea.
Consolidation in Telecom Industry…
Technical View
Bharti Airtel is a leading Indian global telecommunications company with operations in 17 countries across Asia and
Africa. The stock witnessed a major turnaround in July 2017 as it registered a resolute breakout from a 22 months
long consolidation by piercing through multiyear swing highs around the | 375 region. Thereafter, the stock
consistently moved northwards forming higher highs and higher lows highlighting renewed momentum amid
persistent demand at elevated levels. We believe the sideways consolidation in the last seven weeks has laid the
foundation for the next leg of up move within the ongoing uptrend. The stock provides a good entry opportunity from
a medium-term perspective.
Strong up move from breakout area suggests change of polarity principle
The stock had registered a strong volume led breakout from 22 month consolidation above | 380 in July 2017. After
the strong breakout rally from | 326 to | 438 in just four months, the stock entered a secondary corrective mode and
oscillated between the broad range of | 435 and | 375 in the last six weeks. The entire consolidation over the last six
weeks occurred above the breakout level of | 375. The strong up move during the current week’s trade from the
previous breakout area highlighting the change of polarity principle as per which a significant resistance once taken
out reverses its role and acts as support for future price movement.
The key support base for the stock has shifted higher towards | 390 region as it is the confluence of the 80%
retracement of the current up move form | 375 to | 437 and the 50 days EMA currently placed around | 396 levels.
Faster retracement of last falling segment…
The key observation in the current week’s trade is that the stock has almost completely retraced its most recent six
week declining leg (| 438-373) in just a week. Faster retracement of the last falling segment highlights a structural
turnaround and signals resumption of the next major up move.
Momentum oscillators, volume expansion indicate strength in price structure
Among oscillators, the weekly 14 period RSI has generated a bullish crossover above its nine period’s average, thus
validating the strength in the price. The volume behaviour also supports the positive bias in the stock as the current
week up move from the previous breakout area was accompanied by strong volume of almost three times the 50
weeks average volume of 1.6 crore share per week indicating larger participation in direction of the trend.
Conclusion
Based on the aforementioned technical observations, we believe the stock has concluded a healthy corrective phase
and is set to embark on a sustained up move, going forward. We expect the stock to head towards our target of
| 495 in the medium term being the price parity with the previous up move from | 318 to | 438 (438-318=120 points)
added to the current week low of | 375 projects upside towards 395 (375+120=495) in the medium term.
Bharti Airtel (BHAAIR): Price rebounding from previous breakout area…
Stock Data
Source: Bloomberg, BSE, ICICIdirect.com Research
CMP: | 168.00 Buying Range: | 420.00-432.00 Target: | 495.00 Stop loss: | 390.00 Upside: 16%
Stock price vs. BSE Sensex
Price performance last five years
3
*Recommendation given on i-click to gain on October
13, 2017 at 14:02 hrs
52 Week High / Low 438.15/238.05
50 days EMA 398
200 days EMA 378
52 Week EMA 374
Face Value (|) 5
Market Capitallisation (| Cr.) 171948
22,000
24,000
26,000
28,000
30,000
32,000
34,000
36,000
200
250
300
350
400
450
Oct-16
Dec-16
Feb-17
Apr-17
Jun-17
Aug-17
Oct-17
Bharti Airtel BSE Sensex
4%7%
-3% -10%
41%
-30%
20%
2013 2014 2015 2016 YTD
Year
Bharti Airtel (BHAAIR): Weekly Bar Chart
Source: Bloomberg, ICICIdirect.com Research
4
Long term 22 months consolidation breakout signals
resumption of the long term up trend
Price parity with previous
up move@ 495
438
283
The weekly 14 period’s RSI has generated a bullish crossover above its nine period’s
average thus validates positive bias
373
375
Price rebounding from the previous
breakout area highlighting Change
of polarity principle
Strong volume during current week up move highlights larger participation in the
direction of the trend
318
A strong rebound from the support level signals resumption of the up move
after recent consolidation and offers fresh entry opportunity
Stock Data
Bharti Airtel (BHAAIR): Fundamental view
Fundamental View
Bharti Airtel is the biggest telecom player in India, as of now. with 340 mn subscribers (after consolidating tata
subscribers) with subscriber market share of 31.1%. The company enjoys superior EBITDA margin profile of 35-37%
in India mobile business vs sub 30% EBITDA margins for peers. Apart from Mobile business, it also has interest
spanning across DTH, Enterprise, broadband business in India. Apart from India, it has operations in Srilanka and
across 15 countries in Africa. It caters 80 mn customers in Africa, 17% of which uses mobile data with data usage of
860 MBs per subs/month. It also has tower infra business in india, where on standalone basis, it has ~39K towers and
on consolidated basis ( 42% stake in Indus Tower), it has ~90K towers.
Industry consolidation largely done
We reiterate that our belief that the Indian telecom industry would eventually transition from seven to nine players to
an optimum number three to four players, seems to have fructified. All marginal and troubled players like Videocon,
Telenor, Tata Tele, etc, (with the exception of RCom & Aircel) have finally exited given the lack of viability sans a
considerable scale. We note that consolidation would also bring in some pricing discipline gradually in the sector once
the challenger Jio garners a considerable subscriber/revenue base and would benefit all players, including Airtel.
Airtel remains our top pick
With the acquisitions (of Telenor & Tata Tele), Bharti Airtel would cement its position in the Indian telecom space with
a post merger subscriber base of ~370 million (tad closer to Idea-Vodafone base of ~404 million) and remains a
preferred choice owing to the superior operating metrics. Airtel has a superior margin profile (35-37% in the Indian
mobility vs. sub 30% for peers). Considering the structural change in the industry, we remain positive on Bharti Airtel.
Q1FY18 results were better than expectations
Revenues came in higher at | 21958.1 crore (vs. expected | 21717.3 crore) aided by higher voice and data revenues.
The voice revenues from the Indian business came in at | 9273.63 crore (vs. estimated | 9123.1 crore) owing to sharp
volumes jump of 10.7% QoQ to 421.9 billion minutes (I-direct estimate 417.5 billion minutes) driven mainly by the free
voice bundled offer. On the contrary, there was 9.5% QoQ decline in voice ARPM to 22.0 paisa versus estimates of
21.9 paisa..
Key Financials
Valuation summary
Source: Company, ICICIdriect.com Research
5
Particulars Amount
Market Capitalization (| Crore) 172,507.8
Total Debt (FY17) (| Crore) 107,428.1
Cash (FY17) (| Crore) 1,617.7
EV (| Crore) 260,836.2
52 week H/L 438 / 283
Equity capital 1,998.7
Face value 5.0
| Crore FY16 FY17 FY18E FY19E
Net Sales 96,619 95,468 86,615 91,893
EBITDA 34,093 35,330 30,619 33,009
Net Profit 5,484 3,932 1,239 2,850
EPS (|) 13.7 9.5 3.1 7.1
FY16 FY17 FY18E FY19E
P/E 31.5 45.4 139.3 60.5
Target P/E 36.5 52.6 161.4 70.2
EV / EBITDA 7.7 7.8 9.2 8.5
P/BV 2.6 2.6 2.6 2.6
RoNW (%) 6.1 7.6 1.9 4.2
RoCE (%) 9.4 8.4 5.9 7.0
Technical View
The telecom sector has been out of the limelight over a long period, weighed down by numerous headwinds across
the sector. The share price of Idea Cellular had been in a downward trajectory since hitting a life-time high of | 204 in
April 2015. The stock is currently seen rebounding after attracting strong demand near its long term value area placed
around | 70 region. We believe it offers a good buying opportunity with a favourable risk/reward set-up from a
medium term perspective to benefit from the expected up move towards July 2017 high placed around | 99 region.
Attracting demand at long term value area...
The decline off April 2015 life-time high of | 204 anchored upon the major value area for the stock placed around | 65-
70 region in November 2016. The stock witnessed a base formation above the value area for nearly two months
before staging a strong rebound at the start of CY17. The key observation during the up move in the first two months
of CY17 is that the stock posted a faster retracement of its preceding eight month decline which was overhauled in
just two months. Faster retracement of the last falling segment highlighted the presence of strong demand to own the
stock at the major value area of | 65-70, which is the confluence of following:
80% retracement of the major bull-run from 2008 low of |34 to life high of |204 is placed around |68 region
Yearly low of 2012 is also placed around | 65 levels
After posting a faster retracement of its last falling segment in first two months of CY17, the stock has witnessed a
gradual descend over the last eight months. Slower pace of retracement highlights the corrective nature of current
decline. In the current week, the stock has formed a bullish engulfing candle after testing the long term rising trend
line joining lows of 2008, 2016 and 2017 placed around | 70 region highlighting presence of strong demand to own
the stock near its key value area. We believe the stock offers good buying opportunity for medium term investors with
a favourable risk/reward set up to benefit from the next up move over the coming months.
Momentum oscillators indicate build up of strength…
Among oscillators, the weekly stochastic has generated a positive crossover above its three week average as it is
rebounding from oversold reading of nine suggesting build-up of positive momentum in the underlying trend and
supports continuance of bullish price momentum in the coming months.
Conclusion
Considering the above-mentioned technical evidence, we believe the stock is set to embark upon its next up move
from here on and provides good entry opportunity from medium term perspective. We expect it to resume upward
momentum and head towards target of | 96 levels in coming months as it is the 50% retracement of the entire decline
from March 2017 high of | 123 to recent low of | 71. The confluence of July 2017 high around | 99 region makes this
the likely target for the current up move in the stock.
Idea Cellular (IDEACEL): Poised at long term value area…
Stock Data
Source: Bloomberg, BSE, ICICIdirect.com Research
CMP: | 79.00 Buying Range: | 76.00-80.00 Target: | 96.00 Stop loss: | 68.00 Upside: 23%
Stock price vs. BSE Small cap
Price performance last five years
6
*Recommendation given on i-click to gain on October
13, 2017 at 13:58 hrs
52 Week High / Low 123.50/65.80
50 days EMA 81
200 days EMA 87
52 Week EMA 88
Face Value (|) 10
Market Capitallisation (| Cr.) 28893
8,000
8,500
9,000
9,500
10,000
10,500
11,000
11,500
60
70
80
90
100
110
120
Oct-16
Dec-16
Feb-17
Apr-17
Jun-17
Aug-17
Oct-17
Idea Cellular BSE100
61%
-8%-7%
-48% 7%
-60%
-10%
40%
2013 2014 2015 2016 YTD
Year
Idea Cellular (IDEACEL): Monthly Bar Chart
Source: Bloomberg, ICICIdirect.com Research
7
The stock is poised at long term value area and offers
good entry opportunity from medium term perspective
68
Monthly Stochastic is seen rebounding from oversold threshold
204
71
Volume expansion highlights accumulation at long term value area34
99
Faster retracement
Strategy Follow up
8
Date Scrip Name Rec Price Target Stoploss CMP Return till date (%)
13-Jul-17 ABB 1460 1720 1320 1362 -6.7%
13-Jul-17 VA Tech Wabag 665 795 570 587 -11.7%
19-Jul-17 Sundaram Finance 1650 1990 1490 1650 0.0%
27-Jul-17 GE T&D 408 505 355 383 -6.1%
2-Aug-17 United Spirits 2580 3150 2298 2410 -6.6%
3-Aug-17 Philips Carbon 590 1050 840 918 55.6%
16-Aug-17 NCC 85.5 112 73 91 6.4%
16-Aug-17 Simplex Infrastructure 460 589 395 465 1.1%
13-Sep-17 Reliance Naval Engineering 56 69 47.5 51 -8.9%
18-Sep-17 Asian granito 485 615 430 493 1.6%
19-Sep-17 PNB 143 170 129 133 -7.0%
9-Oct-17 Tata Power 80 98 72 82 2.5%
10-Oct-17 RSWM 342 405 298 345 0.9%
Summary Performance - Recommendations till date
Total Recommendations 303 Open 13
Closed Recommendations 290 Yield on Positive recommendations 18.0%
Positive Recommendations 222 Yield on Negative recommendations -8.0%
Closed at cost 6
Strike Rate 78%
9
Notes…
• It is recommended to enter in a staggered manner within the prescribed range provided in
the report
• Once the recommendation is executed, it is advisable to keep strict stop loss as provided in
the report on closing basis.
• The recommendations are valid for six months and in case we intend to carry forward the
position, it will be communicated through separate mail.
Trading portfolio allocation
• It is recommended to spread out the trading corpus in a proportionate manner between the
various technical research products
• Please avoid allocating the entire trading corpus to a single stock or a single product
segment
• Within each product segment it is advisable to allocate equal amount to each
recommendation
• For example: The ‘Momentum Pick’ product carries 3 to 4 intraday recommendations. It is
advisable to allocate equal amount to each recommendation
10
Recommended product wise trading portfolio allocation
Duration
Momentum Picks-
Intraday
10% 30-50% 2-3 Stocks 1-2% Intraday
Momentum Picks-
Positional
25% 8-10% 6-8 Per Month 5-8% 1 Month
Stocks on the move 25% 12-15% 6-8 Per Month 10-12% 3 Months
Gladiator Stocks 35% 15-20% 20-30% 6 Months
Cash 5%
-
100%
Number of Calls Return Objective
Product Product wise
allocation
Allocations
Max allocation
In 1 Stock
Pankaj Pandey Head – Research [email protected]
ICICIdirect.com Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC
Andheri (East)
Mumbai – 400 093
11
12
Disclaimer
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