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India Telecoms Sector
THEME
A drive to the country side
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While the rural market is expected to be the key driver of India’s
telecoms sector, we believe that the understanding of rural usage
patterns and economics remains rudimentary. To address this, we
travelled over 800 km, visiting 55 villages in rural India for in-depth
interviews with 92 mobile subscribers (subs) and 21 retailers. This is
our third survey of the on-the-ground realities of Indian telecoms.
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We find that rural subs are more sensitive to network quality than
prices. This has led to: 1) a monopoly/duopoly in most villages with the
better network taking most subs and 2) a low churn rate for customers.
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Our survey indicates that: 1) retailers service an area with a 10-12 km
radius and 2) there is in informal credit system between most retailers
and customers.
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For established operators, rural EBITDA margins could be around
200 bps lower than urban margins. For new/marginal operators, the
margin gap expands to 700 bps, making it barely break-even on NPV.
Furthermore, low population density makes rural operations unviable
for the third operator.
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With 42% of incremental subscribers from rural India, Bharti is the
most aggressively positioned in this market. Despite our assumptions
of market share loss, we estimate that rural India could contribute 37%
to its FY3/12 EBITDA and Rs240/share to its current NPV. We maintain
our OUTPERFORM rating with a target price of Rs950.
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