Opportunities abound

93.52 64.80 39.15 31.88 ARPU (Rs)382.00317.00287.00254.00362.90297.98273.51241.00 MOU/Subscriber (minutes)507.00430.00411.00338.00532.35438.60452.10354.90 Revenues
(Rs cr)27012.0018827.006719.001789.0037816.8025416.459742.552236.25 EBIDTA Margin (%)42.1043.0033.7027.0040.0041.5029.0030.00 Net Profit6395.005401.001042.00-126.007993.755845.781229.56       - EPS (Rs)34.1924.973.96    - 44.4530.963.81       - P/E (x)20.9517.5522.31    -16.1214.1523.21       - * Includes Spice,  E: Estimates                                         ** Includes Tata Teleservices Ltd  Prospects
With established operators sharing tower infrastructure the proportion of capital expenditure is likely to come down, pushing up operating expenditure.  Higher EBIDTA margins in the mid-40s for players such as Bharti and RCOM has been due to higher capital expenditure and the resultant higher depreciation. But, since there is some movement from capex to opex (operating expenditure), which may reflect in lower EBIDTA margins, profit margins at the gross level may not see a major decline.  The rollout of 3G and the pricing of the same will decide the how much money operators will make to the new service offering. Valuations could also be rerated once the spectrum issue, which can help the players launch more value added services, is settled.  Of the listed telecom companies, Bharti with a subscriber base of about 6.7 crore and a market share of about 26 per cent, looks the cheapest on valuations parameters of EV/sales (4), EV/EBIDTA (10) and EV/Subscriber (Rs 20,000).  The movement of the RCOM scrip depends on acquisition newsflow as well as its ability to rollout its pan India GSM network. While it increases its cost of running networks based on different technologies, the rollout gives it a shot at the wider base of GSM subscribers.  Whatever the strategy of operators, it is the high growth of the Indian telecom sector which is giving the existing operators the size and funding options to acquire, enhance their networks and in the coming months bid for new technology licences such as 3G.  So, expect growth rates to remain strong for the next couple of years, consolidation to occur as weaker players sell out (over the next 2-3 years) and larger players foray into foreign markets in a bid to expand their global footprint.