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Bharti V/s China Mobile - Views on News from Equitymaster
 
 
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  • Sep 30, 2004

    Bharti V/s China Mobile

    The Indian telecom sector, especially the mobile telephony segment, has come into its own in the last two years and is finally living up to its potential of high growth. With an addition of over 1.5 m subscribers every month to the total subscriber base, India is one of the fastest growing mobile markets in the world and compares favorably with neighbour China in terms of its growth potential.

    In this context, we compare two of the largest telecom companies in these countries - China Mobile from China and Bharti Televentures from India.

    China Mobile is the largest mobile telecom services provider in its country, while Bharti Tele is the largest in India. Before we carry out the comparison, we would like to point out that while China Mobile is a pure mobile telecom services provider, Bharti Tele also provides fixed line, long distance and other corporate data services along with its mobile telephony operations.

    In terms of size, China Mobile is clearly the winner as its 141.6 m mobile customers clearly tower over the 6.5 m customers of Bharti Tele. Since the Chinese telecom market is highly regulated with limited competition (duopoly in case of mobile market) China Mobile has emerged as the largest player in the Chinese mobile market. The huge 54% market share commanded by the company, compared to 25% for Bharti Tele, also substantiates this fact. To put things in perspective, while China Mobile has only one large mobile company, namely China Unicom, to compete with, Bharti Tele has five other major competitors.

    Particulars China Mobile** Bharti Tele*
    Subscriber base 141.6 6.5
    ARPU (Rs) 569 572
    Prepaid/Postpaid ratio 0.64 0.79
    Market share 54% 25%
         
    Revenues (Rs bn) 885 50
    OPM (%) 58.2% 33.5%
    NPM (%) 22.4% 11.7%
         
    ROA 15.5% 5.3%
    ROE 17.9% 12.0%
         
    P/E (x) 13.1 43.8
    P/BV (x) 2.3 5.4

    Source: company balance sheets
    * FY04
    ** Year ending December 2003

    Also, Bharti’s prepaid to postpaid ratio is relatively much more skewed to the prepaid customers. This is a characteristic of a nascent market. On the other hand, the lower prepaid to postpaid ratio for China Mobile indicates a maturing market. The ARPUs (average revenues per user) for the two companies are almost the same. However, we would like to point out that since the Indian telecom sector is still in high growth (and high competition) stage, we may see further reduction in ARPUs for large companies like Bharti Tele.

    As far as the operational parameters are concerned, China Mobile fares better than Bharti Tele. China Mobile’s operating margins are substantially higher than that of Bharti Tele. Duopoly seems to be the key reason for this. Thus the company is likely to have a high bargaining power both among customers as well as its suppliers. Bharti Tele on the other hand, operates in an environment where competition has significantly brought tariffs down.

    However, we would like to point out that Bharti Tele has just turned profitable in FY04 and to that extent the operational parameters of the company may look depressed. Also, one needs to understand that Bharti Tele provides almost all kinds of telecom services including fixed line and long distance services. Due to such a diverse offering too, the operating profit margin of the company is on the lower side compared to China Mobile. Moving on to the return ratios, here again, China Mobile outperforms. This is due to the fact that Bharti Tele’s operations have not achieved steady state (has become profitable only in FY04), thus the return ratios seem depressed.

    Coming to the valuation parameters of both the companies, at first glance, Bharti Tele’s valuations look much more expensive than its counterpart China Mobile. However, as mentioned earlier, Bharti Tele has just turned profitable in FY04, and there is expectation that the earnings of the company will catch up to the price in the long-term.

      China India
    Population (bn) 1.3 1.08
    Telecom penetration * 42.3 7.1
    Mobile penetration (approximately) 23.0 4.5
    Monthly additions to mobile subscriber base (m) 4-4.5 1.5

    * source: ITU (2003)

    China Mobile is a showcase of what a telecom company can do in a fast growing market. In a matter of few years China Mobile has become the largest mobile operator in the world, in terms of subscriber size, unseating even Vodafone. Looking at the table above, one can gauge the fact that despite registering such strong growth in subscribers’ month on month, India still has a long way to go. Despite having a telecom density that is 6 times India’s, China continues to add close to 4 m -4.5 m mobile users in a month (almost 3 times the Indian market). That is why, some telecom companies use the tag line: The future is bright…

     

     

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