Market Voice: Ganesh Duvvuri

?Healthy traffic growth came as a surprise?

Ganesh Duvvuri, telecom analyst, Edelweiss Securities, in an interview with Sunaina Vasudev, reviews the quarterly results of the telecom companies. Edited excerpts: 

How did you read results in the telecom sector? Were they in line with expectations?
In terms of traffic minutes reported, results were better than expected. Except RCom, all operators reported 9-11 per cent growth in the volume of minutes, as customers came back to the incumbent operator networks. It is a healthy sign that came as a surprise. 

Moreover, revenue per minute, average revenue per user, minutes of usage and margins were also in line with expectations. 

Do you see any positive surprises, or negatives, for the sector?
Negatives came from the operating margin perspective. Margins declined sequentially, even when volume posted such robust growth. This indicates that the operating leverage is still not kicking in. Realisations are still trending downward, although the rate of decline should come down from the 4.5 per cent seen this quarter. 

What is your sense of valuations at these levels? Do you believe that most of the issues with the sector are already priced in?
From a valuation outlook, the telecom stocks are still trading at a premium to most of their regional and global peers. However, the sector looks attractively valued compared to the Indian market. 

The premium to global peers is because of expectations that most of the negatives in the business are factored in. From here on, you will probably start seeing growth in the sector.