Marmore Company Reports. Ooredoo. subsidiary

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1 Marmore Company Reports Ooredoo Country Sector Telecom

2 Research Team MRMORE COMPNY REPORTS Ooredoo ( Telecommunications Company) July 2015 M.R. Raghu CF, FRM Head of Research RMandagolathur@markaz.com N.C. Karthik Ramesh Manager Research KRamesh@markaz.com Rakesh Khanna Research nalyst Rkhanna@markaz.com ditya Rane Intern Support Team Jenevivu Lasrado Executive Secretary, Research JLasrado@markaz.com Nataraj Balakrishnan Manager dmin & Support Nbalakrishnan@markaz.com Disclaimer This report has been prepared and issued by Marmore MEN Intelligence Ltd (Marmore), a fully owned research of Kuwait Financial Centre Markaz K.P.S.C. Marmore is a private limited company registered with the Registrar of Companies in India. This Report is owned by Marmore and is privileged and proprietary and is subject to copyrights. Sale of any copies of this Report is strictly prohibited. This Report cannot be quoted without the prior written consent of Marmore. ny user after obtaining Marmore's permission to use this Report must clearly mention the source as Marmore." The Report is intended to be circulated for general information only and should not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any financial instruments or to participate in any particular trading strategy in any jurisdiction. The information and statistical data herein have been obtained from sources we believe to be reliable, but no representation or warranty, expressed or implied, is made that such information and data is accurate or complete, and therefore should not be relied upon as such. Opinions, interpretations, estimates, and projections in this report constitute the current judgment of the author as of the date of this Report. They do not necessarily reflect the opinion of Markaz or Marmore or other identified parties and are subject to change without prior notice. Neither Marmore nor Markaz have an obligation to update, modify, or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast, or estimate set forth herein, changes or subsequently becomes inaccurate, or if research on the subject company is withdrawn. This Report may not consider the specific investment objectives, financial situation, and the particular needs of any specific person who may receive this report. Investors are urged to seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this report and to understand that statements regarding future prospects may not be realized. Investors should note that income from such securities, if any, may fluctuate and that each security s price or value may rise or fall. Investors should be able and willing to accept a total or partial loss of their investment. ccordingly, investors may receive back less than originally invested. Past performance is not necessarily indicative of future performance. Markaz may seek to do business, including investment banking deals, with companies covered in its research reports. Markaz may have interests in the areas covered in this research report. Markaz, Markaz managed entities, its clients, or its employees may have from time to time long or short positions in any security, derivative or other types of assets referred to in this research report. s a result, investors should be aware that Markaz may have a conflict of interest that could affect the objectivity of this report. This report may provide the addresses of or contain hyperlinks to websites. Except to the extent to which the report refers to website material of Markaz and Marmore, Markaz has not reviewed the linked site and takes no responsibility for the content contained therein. Such address or hyperlink (including addresses or hyperlinks to Markaz s or Marmore s own website material) is provided solely for your convenience and information, and the content of the linked site does not in any way form part of this document. ccessing such website or following such link through this report or Markaz s or Marmore s website shall be at your own risk. For further information, please contact Markaz at P.O. Box 23444, Safat 13095, Kuwait; info@e-marmore.com; Tel: ; Fax:

3 MRMORE COMPNY REPORTS Ooredoo ( Telecommunications Company) July 2015 Table of contents 1. Executive Summary Business Overview... 9 Overview... 9 Porter five force analysis...13 STEEPLED analysis Financial Overview...23 Revenues...23 Revenue break-up...23 Net Profit...25 Cost Structure...27 DuPont nalysis...27 Balance Sheet Strength...28 Cash flow from Operations...29 Capital Expenditure...30 Earnings Quality Projections Peer Comparison...37 Regional Peers...37 Global Peers Share Market Overview...40 Dividend...43 Risk Metrics...43 Liquidity

4 MRMORE COMPNY REPORTS Ooredoo ( Telecommunications Company) July 2015 nalyst Calls ppendix...46 Sector Overview...47 Investment forecast...48 Role of Government...50 Sector Growth Drivers...50 Corporate Governance

5 MRMORE COMPNY REPORTS Ooredoo ( Telecommunications Company) July 2015 Tables and Charts Tables Charts 1.1 Summary 2.1 Shareholding Pattern Business View 2.2 Revenues from investments in USD millions 1.3 Financial View (Long-term Trend) 2.3 Market share in various countries in terms of subscribers 2.1 Performance Indicators 3.1 Segment Wise Revenue -, USD millions 2.2 Summary of Porter s Five Forces analysis 3.2 Region wise Revenue, USD millions 2.3 Time required for various permits for starting business and associated fees in 3.3 Ooredoo, Region wise Net profit trends (USD millions) 2.4 Summary of STEEPLED analysis 3.4 DuPont nalysis 2.5 SWOT analysis 3.5 Cash Flow Indicators: CFO (USD Mn), CFO/Sales ratio 3.1 Revenue Growth nalysis 3.6 Capital Expenditure (Capex) nalysis 3.2 Ooredoo Subscribers by Country and Segment 6.1 Ooredoo vs. Stock Exchange Index, Present 3.3 Cost Structure 6.2 Ooredoo Volume Traded (in 000 s) vs. Price 3.4 DuPont nalysis 6.3 Risk vs. Return: OOREDOO and Peers, Balance Sheet Strength 6.4 nalyst Call Summary 3.6 Earnings Quality OOREDOO & Industry Median 3.7 Earnings Quality Components 4.1 Projections for Income Statement, Balance Sheet 4.2 Revenue Forecast 4.3 Cost of Revenues 4.4 Property Plant and Equipment 4.5 Capex 5.1 Peer Group Evaluation, - Ro, ROE 5.2 Peer Group Evaluation,- Quick Ratio, Current Ratio and D/E 5.3 Peer Group Evaluation, - PE, EPS and DPS 5.4 Peer Group Evaluation, - RPU, Subscribers 5.5 Rankings of Global Peers based on Market Cap 6.1 Index Returns vs Stock Returns (nnualized) 6.2 OOREDOO Dividends, Risk Metrics 6.4 Liquidity Metrics 7.1 Projections for Income Statement, Balance Sheet 7.2 Market Structure, 7.3 ICT spending forecast 7.4 Board of Directors 7.5 Management team 7.6 CEOs by country and 7.7 Ownership interests as on 31st December

6 MRMORE COMPNY REPORTS Ooredoo ( Telecommunications Company) July Executive Summary Table 1.1: Summary Market Cap (pr'15) USD 8.56 billion Sales (2014) (USD Bn) 9.12 Listings Stock Exchange bu Dhabi Securities Exchange Net Profit (USD Bn) 0.58 % share in the index 4.5% of Stock Index Net Debt (USD Bn) 0.12 Number of employees 17,551 P/E Number of countries 15 P/B 1.36 Peer group ranking 3rd out of 7 listed players Div. Yield 4.26% Source: Marmore Research, PE, PB, Div Yield s on 29th pril 2015 Ooredoo was founded in 1999 and continued to be the only telecom services provider in till Ooredoo is a i telecom giant previously known as Qtel. Majority shares of the company are held by the i government through various investing entities. It has 36 wholly owned subsidiaries and has controlling stake in 54 companies across 15 countries Ooredoo offers services such as fixed and mobile telephony, fixed and wireless broadband and enterprise telephony Ooredoo was founded in 1999 and continued to be the only telecom services provider in till s of 2015, Ooredoo has active operations in 15 countries with a total consumer base of about 107 million up 11% from 2013 It is the 3rd largest telecom services company in region ranked by market capitalization. Saudi telecom services (USD billion) and Etisalat (USD 9.74 billion) are the first and second companies by market capitalization Ooredoo offers services such as fixed and mobile telephony, fixed and wireless broadband and enterprise telephony Ooredoo has been pioneer in telecom sector with high speed services like 3G and 4G It has recorded a 14% increase in subscribers in Iraq despite the ongoing crisis in the country. Iraq amounts to 11% of the total 6

7 MRMORE COMPNY REPORTS Ooredoo ( Telecommunications Company) July 2015 subscriber base of Ooredoo and 19% in terms of revenues making it Ooredoo has well diversified sources of revenue hence it is protected from volatility in some markets. the 3 rd largest market for Ooredoo (in terms of revenues). Ooredoo has returned CGR of 3.6% over the period of five years as compared to the stock index s CGR of 11%. Table 1.2: Business View Ratings Sector ttractiveness Business Model ttractiveness Industry Competitiveness STEEPLED nalysis Source: Marmore nalysis High High Good Good The telecom sector in remains highly attractive due to the rising population and disposable income. There are only two telecom operators currently in the market and no Mobile Virtual Network Operators (MVNOs) hence the competition is low. Ooredoo has well diversified sources of revenue hence it is protected from volatility in some markets. Unlike UE, has not banned VOIP services hence the data consumption is on the rise. has not banned VOIP services hence the data consumption is on the rise. The drop in voice revenues has been offset to some extent by rising data revenues. Ooredoo has significant market share in most of the countries that it operates. The STEEPLED analysis reveals that social, technological, economic, political, legal and demographic factors are in favour of the telecom business. Table 1.3: Financial View (Long-term Trend) Top line Growth Bottom-line Growth Operating Margins ROE Balance Sheet Strength CFO Capital Expenditure Earnings Quality Source: Marmore nalysis Ratings 7

8 MRMORE COMPNY REPORTS Ooredoo ( Telecommunications Company) July 2015 Ooreedoo s revenue has grown at a CGR of 4.93% from While, net income has declined at a CGR -12%. The revenues from 2014 declined by 1% owing to decline in revenues from Kuwait and Iraq by 14% and 12% respectively. The verage Revenue per User (RPU) has declined at a CGR of 5.37% since Capital expenditure has grown at a CGR of 10.74% between 2010 and The Capex is primarily in network modernization, better coverage. Earnings quality of Ooredoo has been lower than the industry median. Cash flow from operations and operating efficiency of the company were responsible in bringing down the overall earnings quality. 8

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