Sector outlook – Telecom

 The telecom sector is poised for better revenue growth and margin improvement, backed by tariff hike and revenue from 3G services.
 Impact of recent tariff hikes has been analyzed and its effect on revenue side is positive.
 Despite a weak start, it seems that building blocks on 3G are falling and revenue growth is gaining momentum.
 Profitable revenue growth from tariff increase and 3G revenue is expected to increase free cash flow of companies, which will help debt reduction.
 Competitive intensity in the industry is falling and there is increased scope for resurgence.
 Price driven revenue growth will improve margin and better free cash flow. Lower capex requirements may also help free cash flow.
 Besides tariff hike, urban cycle revenue is expected to get a boost by data (internet) while there is further potential for rural mobile penetration.
 As the industry prospects are improving, Indian telecom companies are expected to report 50% plus increase in EPS in FY13. Based on this, target prices on Idea and Bharti have been hiked.