Indian telecom companies may have bottomed out after India's
botched spectrum auction, and with smartphone sales in emerging
markets set to jump next year, and India (
) touted as the top BRIC market for 2013, investors with a long
term horizon may want to start doing their due diligence now.
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Last week saw a spectrum auction that failed miserably to clear
the available inventory, with the Indian government only raising
$1.7 billion thanks to over-inflated prices, less than a quarter of
what it was optimistically hoping for.
The three largest telecom companies, Vodafone (
), Bharti Airtel, and Tata Communications (
), all balked at the government's sticker prices.
Beyond Brics blog notes that with India's telecom companies
facing what could be their weakest quarterly revenue performance in
is the worst now over
"The market seems to think so. Bharti Airtel, the nation's
largest operator by revenue, has seen its stock rise by more than
10% since day one of the auctions last Monday, after which it was
clear the contest would be exactly the type of damp squib most
A second auction to sell the unsold spectrum is likely to
depress prices further, with Bharti well placed to benefit from
cheaper renewal prices for its existing licenses.
Market mood is certainly improving around Indian telecom
companies after last week's shambles.
That's not to say it's definitely time to jump in boots and all.
The Indian government, not famous for its competence, hasn't yet
confirmed plans for a second auction, and probably won't until next
week at the earliest.
But consider that according to a Digitimes Research
smartphone shipments are set to expand by 30.2% to 865 million
units next year
-- 43.9% of total cellphone shipments -- with strong demand from
the likes of China and India largely responsible for the increase
thanks to their low current smartphone penetration.
New spectrum + more smartphones = increased data use and fatter
margins for telecoms.
And JPMorgan rates
India its top pick amongst the BRIC countries
for next year, owing to its easing monetary climate and improving
"The BSE India Sensitive Index has rallied 18% this year, more
than any other benchmark gauges for Brazil, Russia and China,
driven by foreign fund flows and government policy measures
unveiled since mid-September.
"The 30-stock SENSEX trades at 15 times estimated earnings,
compared with a multiple of 16 for Brazil's Bovespa Index, 5.6 for
Russia and 9.6 for China. The MSCI Emerging Markets Index (
) trades at a multiple of 11.2, the data show."
If this is a bottom for India's previously high-performing
telecom companies, then the macro environment next year looks
positive for investors looking for a long-term trade.