October 16, 2017

Research Analysts

Dharmesh Shah dharmesh.shah@icicisecurities.com Pabitro Mukherjee pabitro.mukherjee@icicisecurities.com

Nitin Kunte, CMT nitin.kunte@icicisecurities.com Vinayak Parmar vinayak.parmar@icicisecurities.com

Dipesh Dagha dipesh.dagha@icicisecurities.com

Gladiator Stocks – Telecom Thematic

Scrip I-Direct Code Action Target Stoploss Upside

Bharti Airtel BHAAIR Buy in the range of 420.00-432.00 495.00 390.00 16%

Idea Cellular IDECEL Buy in the range of 76.00-80.00 96.00 68.00 23%

Time Frame: 6 Months

2

Deal Team – At Your Service

The consolidation in Telecom industry is a much needed boost considering the:

• Fragmented industry with over 6-7 players in each circle leading to perennial competition over price/customer churn and affecting the quality as well – the

ARPUs have remained stagnant for the industry over the last decade

• General nature of industry which entails higher capex (both in terms of capex as well network deployment/expansion) which has led to leverage of players (more

so for smaller players) inching up sharply).

• Most importantly, Price competition from newcomer Jio who has already spent over ~| 1.5 lakh crore to build up a comparable 4G network

The consolidation in the industry already visible with:

• Fringe players such as Videocon, Tikona and Telenor selling their spectrums to Bharti in order to exit the sector

• Talks of government owned BSNL and MTNL also mulling to merge in order to create network efficiencies as well as other cost synergies.

• Merger of Idea – Vodafone to create the largest entity in Indian telecom industry

• Acquisition of Tata Teleservices’ wireless business by Airtel

Industry consolidation largely done

We reiterate that our belief that the Indian telecom industry would eventually transition from seven to nine players to an optimum three to four players, seems to

have fructified. All marginal, troubled players like Videocon, Telenor, Tata Tele, etc, (with exception of RCom, Aircel) have finally exited given lack of viability sans a

considerable scale. We note that consolidation would also bring in some pricing discipline gradually in the sector once the challenger Jio garners a considerable

subscriber/revenue base and would benefit all players, including Airtel and Idea.

Consolidation in Telecom Industry…

Technical View

Bharti Airtel is a leading Indian global telecommunications company with operations in 17 countries across Asia and

Africa. The stock witnessed a major turnaround in July 2017 as it registered a resolute breakout from a 22 months

long consolidation by piercing through multiyear swing highs around the | 375 region. Thereafter, the stock

consistently moved northwards forming higher highs and higher lows highlighting renewed momentum amid

persistent demand at elevated levels. We believe the sideways consolidation in the last seven weeks has laid the

foundation for the next leg of up move within the ongoing uptrend. The stock provides a good entry opportunity from

a medium-term perspective.

Strong up move from breakout area suggests change of polarity principle

The stock had registered a strong volume led breakout from 22 month consolidation above | 380 in July 2017. After

the strong breakout rally from | 326 to | 438 in just four months, the stock entered a secondary corrective mode and

oscillated between the broad range of | 435 and | 375 in the last six weeks. The entire consolidation over the last six

weeks occurred above the breakout level of | 375. The strong up move during the current week’s trade from the

previous breakout area highlighting the change of polarity principle as per which a significant resistance once taken

out reverses its role and acts as support for future price movement.

The key support base for the stock has shifted higher towards | 390 region as it is the confluence of the 80%

retracement of the current up move form | 375 to | 437 and the 50 days EMA currently placed around | 396 levels.

Faster retracement of last falling segment…

The key observation in the current week’s trade is that the stock has almost completely retraced its most recent six

week declining leg (| 438-373) in just a week. Faster retracement of the last falling segment highlights a structural

turnaround and signals resumption of the next major up move.

Momentum oscillators, volume expansion indicate strength in price structure

Among oscillators, the weekly 14 period RSI has generated a bullish crossover above its nine period’s average, thus

validating the strength in the price. The volume behaviour also supports the positive bias in the stock as the current

week up move from the previous breakout area was accompanied by strong volume of almost three times the 50

weeks average volume of 1.6 crore share per week indicating larger participation in direction of the trend.

Conclusion

Based on the aforementioned technical observations, we believe the stock has concluded a healthy corrective phase

and is set to embark on a sustained up move, going forward. We expect the stock to head towards our target of

| 495 in the medium term being the price parity with the previous up move from | 318 to | 438 (438-318=120 points)

added to the current week low of | 375 projects upside towards 395 (375+120=495) in the medium term.

Bharti Airtel (BHAAIR): Price rebounding from previous breakout area…

Stock Data

Source: Bloomberg, BSE, ICICIdirect.com Research

CMP: | 168.00 Buying Range: | 420.00-432.00 Target: | 495.00 Stop loss: | 390.00 Upside: 16%

Stock price vs. BSE Sensex

Price performance last five years

3

*Recommendation given on i-click to gain on October

13, 2017 at 14:02 hrs

52 Week High / Low 438.15/238.05

50 days EMA 398

200 days EMA 378

52 Week EMA 374

Face Value (|) 5

Market Capitallisation (| Cr.) 171948

22,000

24,000

26,000

28,000

30,000

32,000

34,000

36,000

200

250

300

350

400

450

Oct-16

Dec-16

Feb-17

Apr-17

Jun-17

Aug-17

Oct-17

Bharti Airtel BSE Sensex

4%7%

-3% -10%

41%

-30%

20%

2013 2014 2015 2016 YTD

Year

Bharti Airtel (BHAAIR): Weekly Bar Chart

Source: Bloomberg, ICICIdirect.com Research

4

Long term 22 months consolidation breakout signals

resumption of the long term up trend

Price parity with previous

up move@ 495

438

283

The weekly 14 period’s RSI has generated a bullish crossover above its nine period’s

average thus validates positive bias

373

375

Price rebounding from the previous

breakout area highlighting Change

of polarity principle

Strong volume during current week up move highlights larger participation in the

direction of the trend

318

A strong rebound from the support level signals resumption of the up move

after recent consolidation and offers fresh entry opportunity

Stock Data

Bharti Airtel (BHAAIR): Fundamental view

Fundamental View

Bharti Airtel is the biggest telecom player in India, as of now. with 340 mn subscribers (after consolidating tata

subscribers) with subscriber market share of 31.1%. The company enjoys superior EBITDA margin profile of 35-37%

in India mobile business vs sub 30% EBITDA margins for peers. Apart from Mobile business, it also has interest

spanning across DTH, Enterprise, broadband business in India. Apart from India, it has operations in Srilanka and

across 15 countries in Africa. It caters 80 mn customers in Africa, 17% of which uses mobile data with data usage of

860 MBs per subs/month. It also has tower infra business in india, where on standalone basis, it has ~39K towers and

on consolidated basis ( 42% stake in Indus Tower), it has ~90K towers.

Industry consolidation largely done

We reiterate that our belief that the Indian telecom industry would eventually transition from seven to nine players to

an optimum number three to four players, seems to have fructified. All marginal and troubled players like Videocon,

Telenor, Tata Tele, etc, (with the exception of RCom & Aircel) have finally exited given the lack of viability sans a

considerable scale. We note that consolidation would also bring in some pricing discipline gradually in the sector once

the challenger Jio garners a considerable subscriber/revenue base and would benefit all players, including Airtel.

Airtel remains our top pick

With the acquisitions (of Telenor & Tata Tele), Bharti Airtel would cement its position in the Indian telecom space with

a post merger subscriber base of ~370 million (tad closer to Idea-Vodafone base of ~404 million) and remains a

preferred choice owing to the superior operating metrics. Airtel has a superior margin profile (35-37% in the Indian

mobility vs. sub 30% for peers). Considering the structural change in the industry, we remain positive on Bharti Airtel.

Q1FY18 results were better than expectations

Revenues came in higher at | 21958.1 crore (vs. expected | 21717.3 crore) aided by higher voice and data revenues.

The voice revenues from the Indian business came in at | 9273.63 crore (vs. estimated | 9123.1 crore) owing to sharp

volumes jump of 10.7% QoQ to 421.9 billion minutes (I-direct estimate 417.5 billion minutes) driven mainly by the free

voice bundled offer. On the contrary, there was 9.5% QoQ decline in voice ARPM to 22.0 paisa versus estimates of

21.9 paisa..

Key Financials

Valuation summary

Source: Company, ICICIdriect.com Research

5

Particulars Amount

Market Capitalization (| Crore) 172,507.8

Total Debt (FY17) (| Crore) 107,428.1

Cash (FY17) (| Crore) 1,617.7

EV (| Crore) 260,836.2

52 week H/L 438 / 283

Equity capital 1,998.7

Face value 5.0

| Crore FY16 FY17 FY18E FY19E

Net Sales 96,619 95,468 86,615 91,893

EBITDA 34,093 35,330 30,619 33,009

Net Profit 5,484 3,932 1,239 2,850

EPS (|) 13.7 9.5 3.1 7.1

FY16 FY17 FY18E FY19E

P/E 31.5 45.4 139.3 60.5

Target P/E 36.5 52.6 161.4 70.2

EV / EBITDA 7.7 7.8 9.2 8.5

P/BV 2.6 2.6 2.6 2.6

RoNW (%) 6.1 7.6 1.9 4.2

RoCE (%) 9.4 8.4 5.9 7.0

Technical View

The telecom sector has been out of the limelight over a long period, weighed down by numerous headwinds across

the sector. The share price of Idea Cellular had been in a downward trajectory since hitting a life-time high of | 204 in

April 2015. The stock is currently seen rebounding after attracting strong demand near its long term value area placed

around | 70 region. We believe it offers a good buying opportunity with a favourable risk/reward set-up from a

medium term perspective to benefit from the expected up move towards July 2017 high placed around | 99 region.

Attracting demand at long term value area...

The decline off April 2015 life-time high of | 204 anchored upon the major value area for the stock placed around | 65-

70 region in November 2016. The stock witnessed a base formation above the value area for nearly two months

before staging a strong rebound at the start of CY17. The key observation during the up move in the first two months

of CY17 is that the stock posted a faster retracement of its preceding eight month decline which was overhauled in

just two months. Faster retracement of the last falling segment highlighted the presence of strong demand to own the

stock at the major value area of | 65-70, which is the confluence of following:

80% retracement of the major bull-run from 2008 low of |34 to life high of |204 is placed around |68 region

Yearly low of 2012 is also placed around | 65 levels

After posting a faster retracement of its last falling segment in first two months of CY17, the stock has witnessed a

gradual descend over the last eight months. Slower pace of retracement highlights the corrective nature of current

decline. In the current week, the stock has formed a bullish engulfing candle after testing the long term rising trend

line joining lows of 2008, 2016 and 2017 placed around | 70 region highlighting presence of strong demand to own

the stock near its key value area. We believe the stock offers good buying opportunity for medium term investors with

a favourable risk/reward set up to benefit from the next up move over the coming months.

Momentum oscillators indicate build up of strength…

Among oscillators, the weekly stochastic has generated a positive crossover above its three week average as it is

rebounding from oversold reading of nine suggesting build-up of positive momentum in the underlying trend and

supports continuance of bullish price momentum in the coming months.

Conclusion

Considering the above-mentioned technical evidence, we believe the stock is set to embark upon its next up move

from here on and provides good entry opportunity from medium term perspective. We expect it to resume upward

momentum and head towards target of | 96 levels in coming months as it is the 50% retracement of the entire decline

from March 2017 high of | 123 to recent low of | 71. The confluence of July 2017 high around | 99 region makes this

the likely target for the current up move in the stock.

Idea Cellular (IDEACEL): Poised at long term value area…

Stock Data

Source: Bloomberg, BSE, ICICIdirect.com Research

CMP: | 79.00 Buying Range: | 76.00-80.00 Target: | 96.00 Stop loss: | 68.00 Upside: 23%

Stock price vs. BSE Small cap

Price performance last five years

6

*Recommendation given on i-click to gain on October

13, 2017 at 13:58 hrs

52 Week High / Low 123.50/65.80

50 days EMA 81

200 days EMA 87

52 Week EMA 88

Face Value (|) 10

Market Capitallisation (| Cr.) 28893

8,000

8,500

9,000

9,500

10,000

10,500

11,000

11,500

60

70

80

90

100

110

120

Oct-16

Dec-16

Feb-17

Apr-17

Jun-17

Aug-17

Oct-17

Idea Cellular BSE100

61%

-8%-7%

-48% 7%

-60%

-10%

40%

2013 2014 2015 2016 YTD

Year

Idea Cellular (IDEACEL): Monthly Bar Chart

Source: Bloomberg, ICICIdirect.com Research

7

The stock is poised at long term value area and offers

good entry opportunity from medium term perspective

68

Monthly Stochastic is seen rebounding from oversold threshold

204

71

Volume expansion highlights accumulation at long term value area34

99

Faster retracement

Strategy Follow up

8

Date Scrip Name Rec Price Target Stoploss CMP Return till date (%)

13-Jul-17 ABB 1460 1720 1320 1362 -6.7%

13-Jul-17 VA Tech Wabag 665 795 570 587 -11.7%

19-Jul-17 Sundaram Finance 1650 1990 1490 1650 0.0%

27-Jul-17 GE T&D 408 505 355 383 -6.1%

2-Aug-17 United Spirits 2580 3150 2298 2410 -6.6%

3-Aug-17 Philips Carbon 590 1050 840 918 55.6%

16-Aug-17 NCC 85.5 112 73 91 6.4%

16-Aug-17 Simplex Infrastructure 460 589 395 465 1.1%

13-Sep-17 Reliance Naval Engineering 56 69 47.5 51 -8.9%

18-Sep-17 Asian granito 485 615 430 493 1.6%

19-Sep-17 PNB 143 170 129 133 -7.0%

9-Oct-17 Tata Power 80 98 72 82 2.5%

10-Oct-17 RSWM 342 405 298 345 0.9%

Summary Performance - Recommendations till date

Total Recommendations 303 Open 13

Closed Recommendations 290 Yield on Positive recommendations 18.0%

Positive Recommendations 222 Yield on Negative recommendations -8.0%

Closed at cost 6

Strike Rate 78%

9

Notes…

• It is recommended to enter in a staggered manner within the prescribed range provided in

the report

• Once the recommendation is executed, it is advisable to keep strict stop loss as provided in

the report on closing basis.

• The recommendations are valid for six months and in case we intend to carry forward the

position, it will be communicated through separate mail.

Trading portfolio allocation

• It is recommended to spread out the trading corpus in a proportionate manner between the

various technical research products

• Please avoid allocating the entire trading corpus to a single stock or a single product

segment

• Within each product segment it is advisable to allocate equal amount to each

recommendation

• For example: The ‘Momentum Pick’ product carries 3 to 4 intraday recommendations. It is

advisable to allocate equal amount to each recommendation

10

Recommended product wise trading portfolio allocation

Duration

Momentum Picks-

Intraday

10% 30-50% 2-3 Stocks 1-2% Intraday

Momentum Picks-

Positional

25% 8-10% 6-8 Per Month 5-8% 1 Month

Stocks on the move 25% 12-15% 6-8 Per Month 10-12% 3 Months

Gladiator Stocks 35% 15-20% 20-30% 6 Months

Cash 5%

-

100%

Number of Calls Return Objective

Product Product wise

allocation

Allocations

Max allocation

In 1 Stock

Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com

ICICIdirect.com Research Desk,

ICICI Securities Limited,

1st Floor, Akruti Trade Centre,

Road No 7, MIDC

Andheri (East)

Mumbai – 400 093

research@icicidirect.com

11

12

Disclaimer

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13

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