How good is the situation with Suzlon Energy Ltd.?

Suzlon Energy Ltd. got rid of a substantial portion of it's Debt pain in the month of April'15 when it's sale transaction of it's German subsidiary Senvion, was executed. There was another big positive development for Suzlon in the first couple of months of 2015, which is the entry of a Strategic Investor in the form of Sun Pharma's promoter, in his personal capacity. Considering all these developments, I had written a post on Suzlon Energy Ltd. in the last week of February'2015. Here is the link to it:

Suzlon Energy Ltd. - Supremely Over-valued at current levels!!

I am very happy to say that most of the expectations that I had expressed in that post have come perfectly true over the last 12-15 months. Suzlon's stock price was flying after the two big announcements & had more than doubled within a short span of time. I wanted Investors to have a realistic view of the things at Suzlon & not jump into it at crazy valuations.

Things have cooled down now and Suzlon's share price is about 40% lower than those levels about 15 months ago. Now lets to a reality check again based on the current situation.

Suzlon Energy Ltd's management has done an excellent job of reviving it's India operations in very quick time post sale of Senvion. The substantial Working Capital available to the company throughout last year certainly helped the management to get things moving rather quickly. The entry of a credible strategic investor also infused lots of confidence, not just in the management, but also amongst it's potential

customer base. As per my rough estimates, Suzlon Energy Ltd must have managed a near 60-70% growth in Revenues for it's Non-Senvion operations. The company posted a Total Income figure of about Rs.9600 crores for FY'16, which is closer to the upper limit of the expected range I had mentioned last year. On the EBITDA front, Suzlon managed to post little over Rs.1000 crores, which translates into an EBITDA margin of between 10 to 11%. What is even more heartening is that the EBITDA margin was consistently over 13% for the last 2 quarters of the fiscal gone by.

The chart alongside shows the T-T-M progress of Suzlon Energy's Interest Cost vs it's EBITDA. As was expected, Suzlon's 12-months Interest Cost has dropped rapidly and stood at little over Rs.1200 crores for March'16. I am pretty confident that the same will be around Rs.1000 crores within the next 1-2 quarters. At the same time, the company's EBITDA, which is currently falling a little short to cover the Interest Cost on 12-months basis, has already overtaken the latter during Q4-FY'16 on a quarterly basis. Even on 12-months basis, Suzlon's EBITDA is expected to be higher than it's Interest Cost either by end of June'16 or by Sept'16. This break-even at Cash Profit level gives a lot of confidence to all stakeholders of the company, including it's lenders.

Going forward, the growth the company is able to generate will depend on the Order Inflow momentum in the coming months & quarters. The order intake was extremely strong during Q4, which helped build Revenue-visibility for the company to about 9 to 10 months of current fiscal. But that is not enough. To enable the company to confidently expand it's capacity further, the Revenue-visibility should be in excess of 18 months. As per media release post announcement of Q4-FY'16 results, the management of Suzlon has mentioned that it is expecting the Wind Energy market in India to expand by another 30% in this fiscal and they are confident of doing better than industry growth. But I prefer to be conservative in my estimates and would be happy even if Suzlon manages a Topline growth of between 20 to 25% for FY'17 (i.e. Revenues of around Rs.11,500 to 12,000 crores), alongwith improvement in EBITDA margin to about 15% (i.e. an EBITDA of close to Rs.1800 crores). With Suzlon's Interest cost expected to dip further to little under Rs.1000 crores for FY'17, the company will be left with post-Interest Cash Profit of about Rs.800-850 crores.

Valuations: Suzlon's Equity Capital currently comprises of about 502 crore shares. But it's expected to increase further to over 550 crore shares once all the remaining FCCBs are converted into shares. At the current share price of around Rs.17/-, Suzlon's market capitalisation on fully-diluted equity capital stands at around Rs.9500 crores. At this level, the company is valued at just about 11-12 times it's Post-Interest Cash Profit expected for FY'17. This cannot be termed as very expensive valuations anymore, especially considering the positive momentum surrounding the company. But then if we have a look at the financial numbers & valuation of Suzlon's younger competitor, Inox Wind Ltd., which is also expected to manage a Post-Interest Cash Profit of around Rs.800-850 crores for FY'17, despite being much smaller in Revenue terms, purely because of sharply lower Interest burden. Inox Wind currently trades at a Market Cap of just about Rs.5300 crores, which is nearly 40% lower than Suzlon's current Market Cap. Suddenly Suzlon's valuation starts looking far expensive in comparison. Hence a lot will depend on whether & how Suzlon manages to outperform the conservative growth estimates I have mentioned above. If Suzlon does manage to post much stronger growth rates of around 40% or so, then we can say that it can hold on to the current valuations or even see some bit of up-rating. But I am not expecting any run-away rally in Suzlon stock in the coming few months. I would prefer to wait & watch the company's results for another 2 or 3 quarters before I can say if it deserves any higher Market Cap or not. Alternately, if the entire Industry is re-rated upwards, then Suzlon's stock could rally higher.

Adani Power Ltd. - Seems like Good times are rolling in.

Adani Power Ltd is amongst the newest Thermal Power companies in India, but probably is already the largest Thermal Power producer in the Private sector, overtaking the big daddy (in terms of Age) Tata Power. NTPC, from the public sector, is the largest Power producer in India by miles. But many of it's power plants are old and are due for complete overhaul of equipment & machinery. On the other hand Adani Power Ltd. has built quite a few medium to large capacity Power plants using the latest super-critical technology, which makes it on the most efficient power producers in the country. Apart from building it's own power plants, Adani Power is also on the lookout for potential acquisitions. Last year it completed the acquisition of Lanco's Udipi project of 1200 MW, which is now making profits for the company, and is already planning on expanding it's capacity further by 1600 MW in the coming few years. Another couple of smaller acquisitions are in still awaiting clearances.

As things stand, Adani Power already has over 10,000 MW of Thermal Power generation capacity in operations and is looking to expand this capacity to about 20,000 MW by the year 2020. Eventhough this target is pretty aggressive to achieve, I think Adani Power is well prepared to be very close to that goal by that time. In order to achieve that goal, Adani Power needs to ensure that it's existing power plants are in good financial shape and are generating decent amounts of Cash Profits. Power Generation being not just a very Capital Intensive business, it also takes about 3-4 years to build & commission a new power project and then another year or two for it to breakeven on the Cash Profit front. It's interesting to see how Adani Power's financials have progressed over the last few quarters.

As usual I prefer to check the Trailing-Twelve-Months numbers while analysing financials of any business as it gives us some idea of a trend. Have a look at the T-T-M Total Income chart of Adani Power. After remaining steady within a range for a few quarters, it has started moving up again. As an when a new project gets commissioned, it starts adding to the company's revenues and the numbers for following 4 quarters show an increasing trend on T-T-M basis due to that project. Adani Power's Total Income crossed the Rs.25,000 crores mark after the most recent jump in March'16 quarter. Even if the Q4-FY'16 numbers are annualised, Adani Power's 12-months Income should be very close the Rs.30,000 crores level in another 3 quarters. This will take Adani Power to within 20% of Tata Power's Consolidated Total Income figure, which currently stands at around Rs.37,500 crores mark. If this trend continues, Adani Power should be overtaking Tata Power in another couple of years. And remember that Tata Power's Consolidated numbers includes many things other than it's Thermal Power generation business, like Renewable energy, Power Distribution business, Foreign assets, as well as a small unit dedicated to defence-related technologies. On the other hand Adani Power is a pure-play Thermal Power producer. (I understand that Adani Group's investments in Solar

Power generation projects were done by Adani Enterprises Ltd & not by Adani Power Ltd.. I am not sure if there has been transfer of assets arrangement between the two group companies as yet. I will try & find out more about it from Adani Power's FY'16 Annual Report.)

Coming to Adani Power's progress on the EBITDA front, it has got a substantial jump in the latest quarter, which took the T-T-M EBITDA of the company to it's best ever figure of Rs.8754 crores. In the next 1 or 2 quarters, it should be past the Rs.10,000 crores mark. Adani Power's 12-months EBITDA number is now within 5% of Tata Power's 12-months EBITDA number. The former will overtake the latter here as well within the next 1 or 2 quarters. It seems like some of it's projects, which were commissioned in the last 1 or 2 years, have reached peak operating performance. This combined with the operating turnaround of Adani Power's last acquisition, i.e. Lanco's Udipi Power project, seem to have boosted Adani Power's EBITDA as well as EBITDA margins. With the increased rollout of Central Govt.'s UDAY scheme, the financial health & payment track record of State Electricity Boards is expected to improve in the coming quarters. This will also help Power producers like Adani Power to receive their dues in full and with lesser delay. This will indirectly help these companies to control their Interest Costs, which is the biggest outgo from their EBITDA.

Since setting up a Power project is extremely Capital Intensive & most projects are funded by approximately 80:20 - Debt:Equity Ratio, the Interest burden forms a large portion of the project's cost, especially in the initial few years of the project's commissioning. From the time of Financial Closure of a project file & start of EPC work, it takes anywhere between 2 to 4 years to complete all the EPC work & commission the power plant. After commissioning, it takes about a year or two for the plant to reach near-peak operating performance levels. That is when the project starts generating healthy operating profits to not just cover the recurring Interest Cost, but also leave some Cash Profit to start repaying the Debt associated with that project. That is when we can say that the Project has matured.

Have a look at the T-T-M Interest Cost chart. Adani Power's 12-months Interest Cost stood at just over Rs.4000 crores in March'14, while it's EBITDA was over Rs.4800 crores then. By March'15, it's EBITDA jumped by just under 25%, but it's Interest Cost jumped by about 33%, which suppressed the company's Cash Profits. The situation has drastically improved over the last 1 year. Between

March'15 and March'16, Adani Power's 12-months EBITDA jumped by about 45%, while it's 12-months Interest Cost increased by only about 10%. This has led to a substantial expansion in Cash Profits for the company. Have a look at the T-T-M Interest/EBITDA % chart. From a peak level of about 93%, the situation has rapidly improved over the last 3 quarters and now Interest Cost forms just under 70% of the company's EBITDA. We could see some reversal in this trend for a few quarters as and when a new project is commissioned. But the existing operating projects, which have either reached maturity stage or approaching it, will help the company keep a tab on it's Interest Costs.

A quick comparison with Tata Power's 12-months Interest Cost number tells us that Adani Power's Interest Cost is nearly 70% higher than the former. In case of Tata Power, Interest Cost forms less than 40% of the company's EBITDA. This is case primarily because most of Tata Power's generating assets are much much older and many of them have already been paid for. Even in case of Adani Power, as the average age of it's generating assets increases, we will see the Interest/EBITDA % coming down to even more comfortable levels from the current near-70% levels.

Valuations: At the current share price of around Rs.29/- and considering the existing Equity base of 333.4 crore shares, the Market Cap of the company stands at about Rs.9700 crores. The Promoter Group increased it's shareholding in the company during March'16 quarter by 5%, when it converted the warrants it was holding at the rate of Rs.28 per share. This took the Promoter holding in the company to over 63%. Few weeks ago, another set of warrants were issued for 52.3 crore shares and the conversion price was set at Rs.32.54/-. Assuming full conversion sometime during the next 12 months, the Equity base will expand to just over 385 crore shares. Considering the expanded Equity base, Adani Power's Market Cap at current price will be around Rs.11,000 to 11,500 crores. At this Market Cap level, Adani Power is trading at less than 1.5 times it's T-T-M EBITDA and about 4 times it's T-T-M Cash Profit. Considering the fact that both the EBITDA and Cash Profit of Adani Power is set for a big surge over the next few quarters, I think this current valuation of the company is just too mouth-watering to ignore for Investors. Adani Power could very well prove to be a 2 or 3-bagger over the next 1 to 3 years. Excellent investment for the medium to long term.

Are things really that bad for Idea Cellular?

Amongst the Top-2 listed Telecom stocks, i.e. Bharti Airtel & Idea Cellular, the comparison of their respective stock price movements over the last 12-15 months is quite interesting. Bharti Airtel's stock did hit a high of around Rs.450 sometime in the month of July'15. It is currently trading at a little under Rs.360, which is a 20-21% erosion from those peaks.

(Image from Moneycontrol.com)

On the other hand Idea Cellular's stock had hit a high of just over Rs.200 sometime in the month of April'15. It is currently trading at just over Rs.100, which is a 50% erosion from those levels. All this despite the fact that Idea Cellular has posted superior growth than any of it's large or small peers over the last few years.

Then why has Idea Cellular's stock price massively under-performed that of Bharti Airtel over the last 1 year or so? Is the market suggesting that Idea Cellular is going to face much more worse times in the coming quarters, as compared to Bharti Airtel, possibly due to upcoming competition from Reliance Jio's 4G launch. Even I have been saying in my recent posts on Telecom stocks/industry that Bharti Airtel is better placed than any other existing operator to face the upcoming competition. But certain developments in the recent weeks made me think that one needs to see how Idea Cellular is preparing itself for the upcoming competition.

I am a resident of a small coastal town in Maharashtra. In this telecom circle of Rest of Maharashtra & Goa, Idea Cellular is the undisputed No.1 player with about 33% revenue market share, followed by Vodafone with about 24% and Bharti Airtel at No.3 with just under 13% market share. In the first round of 3G spectrum auctions over half a decade ago, Idea Cellular & Vodafone, amongst the Top-3, grabbed 3G licences for this circle. Idea Cellular was the most aggressive in rolling out it's 3G network and I got to experience 3G in my little town sometime in late 2013. Vodafone's 3G arrived over 6 months later and Airtel had a ICR agreement with Vodafone so that Airtel's subscribers could enjoy 3G on Vodafone's network. Airtel acquired it's own 3G spectrum for RoM&G circle last year and now even my town has Airtel's 3G network since the last few months. Despite strong competition in 3G space, Idea Cellular has not just managed to maintain it's lead in this circle, it has even managed to improve it's market share over the recent years.

Coming to 4G situation, Airtel has been holding the 2300 MHz BWA spectrum for Rest of Maharashtra & Goa circle since the last 6 years, but did not lay the 4G network beyond a few important cities until last year. Airtel got aggressive on 4G rollout only in the middle of last year, when Reliance indicated the mammoth size of it's network rollout. It's been almost a year since Airtel started rolling out 4G network in more & more cities/towns at an aggressive pace, but it still hasn't reached my little town. We have had Jio's 4G signal for the last year or more. On the other hand I was pleasantly surprised to see Idea's 4G signal being detected in my town since the last few days. Then I had a look at Idea Cellular's website for 4G coverage information. Even though it has 4G capable spectrum in only about 10 circles and it started rolling out it's 4G network only about 6-7 months ago, Idea Cellular has certainly been way more aggressive in expanding it's 4G coverage than Bharti Airtel. Considering the super aggression in it's 4G network rollout, I think Idea Cellular is doing it's best to protect it's market position as much as possible, especially in the circles where it already is the strongest player in terms of market share.

Another point to consider is Idea's ability to offer 3G or 4G or both services in the circles that matter the most to the company. Idea is capable of offering both 3G & 4G service in 7 circles (including the important ones like Maharashtra, Kerala, MP, AP), which together contribute about 59-60% of the company's Revenues and a much higher proportion of it's profits. Then there are another 6 circles (including Delhi, Gujarat, both UP circles & Kolkata) where Idea Cellular is offering only 3G service and these circles together contribute about 23-24% of it's Revenues. Then there are another 4 circles (including Tamil Nadu & Karnataka) where Idea Cellular will be offering only 4G service. These 4 circles currently contribute just about 6% of it's revenues, but have the potential to grow strongly with the introduction of 4G. That means Idea Cellular has the ability to offer either 3G or 4G or both services in 17 circles, which together contribute almost 89% of it's AGR. All this supported by it's well entrenched 2G network, which is spread across all 22 circles. Ultimately 2G network will be used purely for Voice calls as it is lot more efficient for the operators to carry Data on 3G or 4G networks.

Coming to Financials, have a look at the Trailing-Twelve-Month charts alongside. The strong growth in Total Income & EBITDA will vanish once Reliance Jio comes in. But I am not expecting it to go really bad for Idea Cellular. Over the initial 4 quarters of Jio's launch I am expecting Idea's Total Income to drop by about 5-10% at the most and EBITDA to drop by about 20%. Idea's EBITDA could still remain above Rs.10,000 crores mark. The company's T-T-M Interest Cost, which currently stands at about Rs.1882 crores, is expected to peak out at about Rs.2800 to 3000 crores over the next few quarters. This will still leave Idea Cellular with a comfortable Cash Profit of around Rs.7000 crores. All this estimates are mainly because of the initial hit that all existing operators are expected to take due to Reliance Jio's launch. But things will stabilise after a few quarters and I am expecting the numbers to start improving again for Idea Cellular. A part of the reason for this expected improvement is that by then some of the smaller operators could be looking to exit, leaving the market for the larger players.

At the current share price of about Rs.100, the market cap of Idea Cellular stands at just about Rs.36,000 crores, which is less than 4 times it's current T-T-M Cash Profit. I have a feeling that the market has under estimated Idea Cellular's ability to compete in the face of increased competition. Yes, Idea Cellular's financials will get worse initially once Reliance Jio is in the ring, but things will start improving again after the initial impact. We cannot ignore the fact the Idea Cellular has very strong brand recall across the country. Idea is the No.1 operator in 4 important circles and No.2 in another 6 circles. Idea does have a strong connect with Rural India and any improvement in Rural lifestyle will directly benefit the company. Also a lot depends on how aggressively Reliance Jio prices it's 4G services and what kind of customers it targets and how the market accepts it's services. Hopefully we will have a better idea of it by the end of this calendar year.

SKS Microfinance Ltd. - Stock Idea performance Update.

I had written about an excellent opportunity to invest in SKS Microfinance about 7 months ago. Following is the link to that report:

SKS Microfinance - opportunity to invest at attractive valuation!!

The SKS Microfinance stock had just undergone a decent correction then and was available for around Rs.425/-. It's been three quarterly results since then and hence it's time to check on the company's financial progress.

One look at the following charts which show the progress made by SKS Microfinance on a T-T-M basis and it will be very clear that the company has managed to continue growing at the same pace that it was a few quarters ago.

Despite the increasing base of comparison, SKS Microfinance has managed to accelerate it's pace of growth during the four quarters of FY'16. The company had reported about 47% Y-o-Y growth in Total Income in FY'15, which in itself was very good. But the company has managed to improve that to grow it's Total Income by about 64% in FY'16. I think this is an excellent achievement by the company. The T-T-M Total Income of SKS Microfinance now stands at over Rs.1300 crores and even it's T-T-M Net Profit has just crossed the Rs.300 crores mark. The company has managed to keep a good tab on it's Interest Costs as well as the Quality of it's Loan Assets. The Interest Cost for the company was under 37% of it's Total Income for FY'16. It has consistently managed to keep this figure under 40% for the last 3 years and this too is an excellent achievement. 

SKS Microfinance Ltd. is in the process of changing it's name to Bharat Financial Inclusion Ltd. I think that the company is taking steps in order to become eligible for a Small Bank License. It is widely expected that the recently awarded Small Bank Licencees will be at an advantage to normal Microfinance companies like SKS in terms of cost of borrowing and also some rules which will be different for the two categories. Many of the Small Bank License winners are now in the process of implementing their new business plans. It might take them about another year or two before those advantages start playing out in their favour and that could be the time when SKS Microfinance might face much stiffer competition from these Small Banks. Hence I think that SKS is aligning itself as per rules for Small Banks and must be hoping to win a license during the next round.

Valuations: The SKS Microfinance stock has rallied from levels of about Rs.425 seven months ago, to about Rs.670 level now, which a 60% rally in a short span. The T-T-M EPS of the company currently stands at little under Rs.24/-. That means the stock still trades at a not-so-expensive valuations of about 28 times, despite the strong rally in it's stock in the recent months. I think this stock can easily hold this P/E ratio over the coming quarters, even though the conservative analyst in me is expecting the company's Y-o-Y growth rate to come down to more reasonable levels of 30-40% over the next 4-6 quarters from the very high levels of 60+% currently. Given the strong growth visibility over the next few quarters with good certainty, I think this stock will continue to move in line with the company's Net Profit growth percentages. I will be worried only when I see signs of the company facing stiffer competition from the newly formed Small Banks, which I am expecting sometime in FY'18.

Telecom AGR: Q4 Analysis - BSNL/MTNL & Idea are biggest gainers.

TRAI released the Gross Revenue & AGR details of all telecom operators for the March'16 quarter this week. It is very interesting to see the kind of progress made by different operators & different circles. The Industry wide AGR has jumped 4.4% Q-o-Q and 11.25% Y-o-Y to touch a figure of Rs.39985 crores in March'16. This is a healthy growth rate & the Industry should be happy about it. The Top-3 circles in terms of contributions to the AGR continued to be Maharashtra, Andhra Pradesh & Karnataka, who together contributed about 25.6% of Total AGR of all 22 circles. Despite their size, these circles have reported a Y-o-Y growth in AGR of around 16%, which is noticeably higher than National AGR growth rate. The Top-3 circles in terms of fastest Y-o-Y growth rate were the relatively smaller circles of Himachal Pradesh, J&K and North-East, who have grown at 21-22% and have seen their combined contribution to National AGR improve from 2.3% in March'15 to 2.5% in March'16. With increased economic activity even in these regions, we should see them continue with the strong progress.

Coming to operator-wise performance, I have focused my attention studying details of only the Top-4 operators as they together contribute about 82% of Industry-wide AGR.

1) Bharti Airtel : Airtel's Y-o-Y AGR growth was healthy at 15.26%, but the Q-o-Q growth was disappointing at just under 3%. This Q-o-Q disappointment resulted in it's Market Share slipping from 30.5% in Dec'15 to 30.1% in March'16. Nevertheless Bharti Airtel's market share has still managed a 110 bps improvement Y-o-Y, which is still commendable for a company of it's size. Bharti Airtel also crossed the Rs.12000 crores Quarterly AGR mark during this quarter. In fact Airtel's one quarter's AGR is even larger than the Annual AGR of No.5 operator in the country!!

The largest contributing circles to Airtel's AGR are: Karnataka (12.9%), Andhra Pradesh (11%) and Tamil Nadu (9.5%). These 3 circles together contributed over Rs.4000 crores in AGR during March'16. In terms of Market Share, Airtel commands over 40% share in 9 of the 22 circles in the country, but most of them are the relatively smaller ones. The most disappointing circle for Airtel is Kerala, where it commands just 7.6% share and has lost about 2% in the last 1 year. The reason could be the lack of 3G license for this circle. Airtel is trying to correct that with an aggressive 4G rollout across the state of Kerala and we could see things turning around for the operator even in this region.

The circles where Airtel has gained over 2% market share in the last 1 year include Kolkata (+7.6%), Mumbai (+4.7%), Haryana (+3.3%), Gujarat (+2.8%) and Tamil Nadu (+2.1%). Most of these circles have seen aggressive 3G/4G rollout by Airtel during the last few quarters. Acquisition of Loop's Mumbai operations did boost Airtel's standing in the crucial Metro circle.



2) Vodafone India: India's No.2 operator has had a relatively disappointing year. Even though Vodafone managed to match Q-o-Q Industry growth with 4.6% AGR growth, it's Y-o-Y growth at just 10% was lower, which has resulted in 30 bps reduction in it's Market share from 21.8% in March'15 to 21.5% in March'16. Another worrying factor for Vodafone India is the limited circles where it can offer 4G service currently, that too on very limited spectrum. It will certainly need to open it's purse strings during the upcoming auctions to become more competitive in the 4G space in the country.

The Top-3 contributors to Vodafone's AGR during March'16 were Gujarat (10.6%), Maharashtra (10.4%) and Tamil Nadu (9.7%). Vodafone commands over 25% market share in 8 of the 22 circles, which includes a few prominent ones like Delhi, Gujarat, Mumbai & UP(E). The circles where Vodafone has managed to improve it's market share over the last 1 year are: Assam (+4.6%), North-East (+3.3%), Orissa (+2.2%), Bihar (+1.7%) and Himachal (+1.1%). Most of these are insignificant circles. In most other circles Vodafone has either barely managed to maintain it's share or has even lost significant share. Vodafone has even lost some share in the Top-3 contributors to it's AGR, i.e. Gujarat, Maharashtra & Tamil Nadu. It has also lost 1.7% market share in Delhi and 1.1% in Andhra Pradesh circle.

Vodafone certainly needs to get it's act together soon. It needs to do something to stop the market share erosion in circles which are very important to it like Delhi, Gujarat, Maharashtra, Mumbai, Tamil Nadu & UP(E). It is already facing the heat from existing competition and things will get even tougher with new competition coming in.




3) Idea Cellular: India's No.3 operator has been the best & most consistent performer over the recent many quarters. With Y-o-Y AGR growth of 19.8% and Q-o-Q Growth of 6.84%, Idea Cellular has once again demonstrated it's superior growth. Idea Cellular's market share has grown from 17.8% in March'15 to 18.7% in Dec'15 and now to 19.2% in March'16. That means a 140 bps improvement in the last 1 year. Idea Cellular is rapidly catching up with the No.2 operator. The gap between Vodafone & Idea's AGR in March'15 was about Rs.1430 crores, which is now down to just about Rs.960 crores in March'16.

The Top-3 contributing circles to Idea's AGR are: Maharashtra (15.9%), Madhya Pradesh (11.8%) and Kerala (11.8%). These 3 circles together contribute close to 40% of Idea's Total AGR. The smallest contributors to Idea's AGR are circles like Assam, Himachal, J&K, Kolkata, North-East, Orissa, Tamil Nadu & West Bengal. These 8 circles together contributed just 5.5% of Idea's Total AGR in March'16. But their contribution was just 3.4% during March'15. The AGR from these 8 circles has almost doubled in the last 1 year. Idea has probably started operations in these circles on it's own network in the recent couple of years.

Idea Cellular commands over 40% market share in 2 circles of Kerala & Madhya Pradesh, while it commands over 30% market share in 3 other circles of Maharashtra, Punjab and UP(W). Idea Cellular has managed to increase it's market share by over 2% in 6 circles over the last 1 year, which include prominent ones like Bihar, Kerala, Punjab, Tamil Nadu & UP(W). Even in Metro circles of Delhi & Mumbai, where it entered very late, Idea has managed to improve it's market share by about 1% each. During the last couple of spectrum auctions, Idea Cellular did the smart thing of bolstering it's 3G/4G capable spectrum holdings in all the large revenue contributing circles. Idea Cellular has 4G capable spectrum in 10 of it's important circles, which should help it insulate to some extent from aggressive competition.

4) BSNL/MTNL: The famous Sleeping Giant of the Indian Telecom industry, which slept through nearly a decade of strong industry growth, is certainly showing signs of waking up from it's long slumber now. After many many many quarters of either negative or zero growth in AGR, the PSU behemoth has shown signs of stability or positive growth in the recent few quarters. BSNL/MTNL combine reported 14.5% growth in AGR during March'16 quarter, both Y-o-Y as well as Q-o-Q. There has been a sudden jump in AGR reported by MTNL for both it's Metro circles. MTNL reported over 21% Y-o-Y and an astonishing 56% Q-o-Q growth during this quarter. Looks very very unusual and it seems like many of it's customers have suddenly come out of dormancy and started generating revenues for the company. Things will be more clear after the AGR numbers for June'16 quarter are announced.

Excluding MTNL circles, BSNL still did a fairly good job on the growth front during March'16 quarter. BSNL's 20 circles reported 12.8% Y-o-Y and 6.6% Q-o-Q growth in AGR, both of which have been better than the Industry growth rates. This is something that BSNL must have delivered for the first time in the last many years. Apart from Mumbai & Delhi, the 3 biggest AGR contributors for BSNL during March'16 quarter were Maharashtra, Kerala and Tamil Nadu. Out of the 20 circles, BSNL's 13 circles reported Q-o-Q growth, 11 of which posted strong double digit Q-o-Q growth. These are very very positive signals coming from BSNL. Hope that this is not a one-off and the company is able to sustain decent growth rates in the coming quarters.

BSNL/MTNL combine managed to grab 11.2% of market share in March'16 quarter, which is higher than the number in March'15 as well as Dec'15. BSNL/MTNL's market share across the 22 circles is well spread out with the combine managing to grab over 15% market share in only 6 circles. The circles where BSNL/MTNL managed to increase their market share by over 150 bps are: Andhra Pradesh, Delhi, Haryana, Maharashtra, Punjab & West Bengal, most of which are relatively larger circles. Lets see how BSNL/MTNL consolidate on this growth momentum in the coming quarters.


Summary: The Top-4 players in the Indian Telecom Industry have been increasing their dominance with their combined AGR Market Share increasing from 79.5% in March'15 quarter to 81% in Dec'15 quarter and 82% in March'16 quarter. The AGR numbers over the recent quarters have clearly proved that Idea Cellular is currently best performer in the Industry, followed by Bharti Airtel. The combine of BSNL/MTNL could prove to be a strong challenger, but it needs to show more consistency. Vodafone India, after having been on a very strong footing for many years, is showing slight signs of weakness compared to it's immediate peers. But this cash-rich operator certainly has the ability to bounce back, but might need a good outcome in the upcoming spectrum auctions and a few quarters of time to do so.

Amongst the smaller operators, who have been losing market share repeatedly, there is a possibility of a strategic merger between RCom, Sistema (MTS) and Aircel getting completed in the near future. But the merged entity is expected to hold the No.5 position in AGR market share, a little behind BSNL/MTNL. The possibility of a merger/acquisition between Tata Tele & Telenor is still uncertain as neither of the management's have uttered anything about it. Until these things work out, we will continue to focus on the Top-4 players. Reliance Jio will join the fray, hopefully before the end of this year. Once it does, it will be interesting to see how the numbers start changing for the Top-4 players.