India telcos: When will men separate from boys?

There is enough to indicate that a consolidation is due in the Indian telecom sector.

Moneycontrol Bureau

Vodafone India CEO Marten Pieters lambasted the practice of Indian banks of being reluctant to write off non-performing assets of telecom companies behind the reason why the much-expected consolidation is slow but added that ultimately only four-six players can serve the industry.

"Why are companies [telecom operators] able to continue with USD 4-7 billion dollars in debt on their balance sheets?" he recently asked in an interaction with The Hindu, adding that if this was the U.S., debt-laden companies who fail to honour their obligations would have "gone broke years ago".

The point the Vodafone chief made underlines how struggling telecom companies are managing to continue operations despite reeling under thousands of crores of debt and a string of losses for quarters.

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In a recent note, Fitch said that it expects the Indian telecom sector to consolidate and leave only top players such as Vodafone, Airtel , Idea , Reliance Communications , apart from new player cash-rich Reliance Jio (promoted by Reliance Industries ) a few others to survive.

The Indian telecom story has played out well for consumers with penetration now rivaling rich countries but cut-throat competition over the years has resulted in call rates dropping drastically. (Indian call rates, currently among the lowest in the world, now appear to have bottomed out and starting to inch marginally higher.)

But what may hasten the demise of so-called non-serious players could be their focus on data, the other major component apart from voice, where scarcity of spectrum has meant that every Mhz of airwave is now closely fought for.

At the recently-concluded spectrum auctions, telecom companies put in bids a total of Rs 61,000 crore but a bulk of amount was spent by the top players such as Vodafone and Bharti.

The auction separated "the boys from the men" according to Pieters.

There have been reports that foreign players such as Norway's Telenor (which runs the Uninor brand in India) and Russia's Sistema (which co-owns MTS) may be looking to exit after failing to acquire a significant market share in India though both operators have denied such plans.

In recent action, Airtel acquired Mumbai-based Loop Telecom for an unknown amount while Vodafone is reportedly in talks to acquire the business of the struggling Tata Teleservices .

Bharti Airtel stock price

On April 10, 2014, at 14:14 hrs Bharti Airtel was quoting at Rs 322.55, up Rs 2.35, or 0.73 percent. The 52-week high of the share was Rs 373.50 and the 52-week low was Rs 271.50.

The company's trailing 12-month (TTM) EPS was at Rs 14.07 per share as per the quarter ended December 2013. The stock's price-to-earnings (P/E) ratio was 22.92. The latest book value of the company is Rs 135.70 per share. At current value, the price-to-book value of the company is 2.38.