Reports suggest that TRAI is in the process of increasing termination charges on international incoming calls from current levels of Rs30 per minute.
Currently, Indian operators are paying weighted average cost of Rs3 per minute for termination of their calls in foreign countries vis-à-vis termination charges of Rs0.30 per minute on incoming international calls in India.
To have parity, TRAI, during the consultation paper issued on ’Review on IUC’, had asked all operators to give their opinion on revision of international termination charges.
Most operators preferred an increase in the international incoming termination charges. Over the next one year, industry expects to send out 9bn minutes, at the rate of 8.8 cents per minute, and receive 25bn minutes, at an average rate of 1.5 cents.
This would result in net outgo of $417mn to international carriers even though India would be a net receiver of 16bn minutes. Parity in the international incoming termination charges is expected to result in net income of Rs40bn to Indian telecom operators.
As a leading player, both in terms of subscriber market share and revenue market share, Bharti Airtel is likely to benefit most from this development.
The stock is beaten down on probable reduction in domestic termination charges. Any hike in international termination charges would offset the impact of this reduction.
With strong execution skills, higher economies of scale arising from a large subscriber base, market leadership, and better quality of subscribers, Bharti Airtel is expected to outperform its peers in the near term.
We reiterate our BUY rating on the stock with a target price of Rs781, indicating an upside of 31% over CMP of Rs596.