RESEARCH REPORT ON 5G STOCKS
5G is about to debut in the Indian market. It means there will be a significant demand for 5G stocks.
5G is the fifth generation of mobile networks. It will be able to connect everything and is expected to revolutionise mobile connectivity and user experience. The Department of Telecommunications (DoT) in India approved on May 4, 2022, to trial the 5G readiness of the country for the next six months.
What is 5G Technology?
It is better to get an idea about the industry before you invest in a stock. 5G is the new global wireless standard. It is designed to connect everyone and everything virtually, including machines, devices, and objects.
Expected 5G market size
According to a report by the Global Mobile Suppliers Association, 5G is active in 61 countries. Australia, China, Canada, the USA, South Korea and European countries have activated 5G. The current market size for 5G is USD 53 billion, which is expected to reach USD 249.2 billion globally by 2026.
There were several investments in 5G recently in India and other countries.
Best 5G stocks to invest in India
The introduction of 5G technology in India will boost the businesses of telecommunication service providers and telecommunication equipment companies. Let’s check out the best 5G stocks in India.
Telecommunication service providers (TSPs)
The TSP category includes local exchange carriers and mobile wireless communication companies.
The following are the best 5G stocks from TSPs.
VI is an Indian telecommunication service provider formed after the merger of Vodafone India and Idea Cellular. It is the largest TSP in India and the 10th largest in the world.
It has deployed several technologies, like massive MIMO, DSR, and cloudification of core, necessary for deploying 5G services. They have already started a 5G trial with their major network partners, Nokia and Ericsson, in two cities.
Airtel is another Indian telecommunication service provider. They have successfully conducted a 5G trial in Kolkata in collaboration with Nokia. They have recently announced plans to launch their 5G service within one month. Airtel 5G service will become available in all major Indian cities by 2023 and critical rural areas by March 2024.
Though Reliance Jio is not a listed company, it is a part of The RIL Group. Reliance will venture into the 5G domain with Reliance Jio. Reliance Jio launched its mobile networking service in 2016, causing major disruption. The cost of their services is 95% lower than competitors. Reliance Jio plans to become a leader in the 5G spectrum.
Mahanagar Telephone Nigam Ltd.
MTNL is a wholly-owned subsidiary of BSNL. The company is the largest in Mumbai and Delhi regarding market size and is the third-largest ISP despite only being present in two cities. DoT has allotted a 5G spectrum to MTNL.
The following are the best 5G stocks in the telecommunication equipment segment. The equipment manufacturing companies will play a key role in building 5G infrastructure and facilitating the service providers in ensuring uninterrupted services across the country.
The Indian Telephone Industries Ltd. is a government-owned company under the ownership of DoT. The company provides 50 percent of the current telecommunication network in the country, providing infrastructure services to MTNL, BSNL, and the defence sector.
Himachal Futuristic Ltd. serves sectors like security, railways, telecommunications, cable fibre, and textiles. They are also involved in building portfolios in 5G products, including 5G Radio Access Network (RAN), 5G transport network in India and foreign markets.
Sterlite Technologies Ltd. is an Indian multinational company specialising in optical fibre, cables, deployment, network software, and hyper-scale network design.
Indus Towers, formerly Bharti Infratel, is a merged entity between Vodafone PLC and Bharti Airtel. The company will also deploy infrastructure for TSPs, which is critical for 5G installation.
Tejas Network is an optical, data networking, and broadband company. The company has built many IPs and emerged as a primary exporter to other developing countries in Africa and south-east Asia. Tata Group has acquired a 43.35 percent stake in the company.
Bharti Airtel Limited, also known as Airtel, is an Indian multinational telecommunications services company. It operates in more than 17 countries as well as the Channel Islands. It is the second-largest mobile network operator in India and the third-largest in the world. Airtel saw an added 2.25 million customers which summed up to 360.03 million in March 2022.
Airtel had announced in November last year that it successfully conducted its first 5G trial in Kolkata, in partnership with Nokia. It was allotted a test spectrum in multiple bands by the government for the validation of 5G technology and use cases. It will join forces with leading global companies such as Accenture, AWS, CISCO, Ericsson, Google Cloud, Nokia, Tata Consultancy Services (TCS) to work with industry-leading brands such as Apollo Hospitals, Flipkart, and several leading manufacturing companies to test 5G based solutions.
On the financial front, the company saw a 17% growth in revenue which stood at Rs. 116,547 Cr. However, it posted a net loss of Rs 4,255 Cr. The company has accumulated a lot of debt over the years for which it has to pay high interest compared to its earnings. The cash flow in the company is also weak as compared to its peers. All these can be attributed to the fact that it faces stiff pricing competition in the market. Despite all this, the promoter’s pledge remains at zero.
Bhartil Airtel committed Rs. 37,292 crore to acquire different bands across all the circles of the country to roll out 5G services. Furthermore, increased capabilities in present bands for Rs. 7,792 crore.
• Hold bharti airtel at the target price of 950.
Vodafone Idea Limited, otherwise known as Vi is an Indian telecom operator which was formed after Vodafone India merged with Idea Cellular. It is the third-largest mobile telecommunications network in India and the 10th largest mobile telecommunications network in the world.
To establish its presence in the 5G segment, Vodafone Idea has been deploying several technologies such as Massive MIMO, DSR, Cloudification of Core, which is central to its future growth strategy. Vi has also initiated 5G trials with its major Network partners Nokia & Ericsson on the recently allocated 5G spectrum in 2 cities in India. It must be noted that the company still faces some challenges and would require the government’s support to stay afloat.
Coming to the financials of the company, it saw a decline in revenue in FY22 which was Rs. 38,516 Cr. The company posted a net loss of Rs 28,245 Cr in the same year. The performance was impacted due to its ability to generate cash flow that it needs to settle its hefty liabilities and dues that are pending. Adding to that is the loss of customers that it is facing. However, the company has zero promoters pledge.
Debt laden Vodafone Idea purchased 6,228MHZ units of airwaves in different bands for Rs. 18,799 crores. Despite being a weak operator, the purchase across 17 circles will help Vi to provide 5G services across most of the country.
• Buy Vodafone idea at 8.25 Target 9, 9.50 Stop loss 7.60
Mahanagar Telephone Nigam Ltd. (MTNL)
MTNL is a wholly-owned subsidiary of Bharat Sanchar Nigam Limited (BSNL). MTNL is the largest ISP in Mumbai and Delhi (in terms of market share), and the third-largest ISP in India though it has a presence just in two circles. The company has its global depository receipts on London Stock Exchange and American depository receipts on New York Stock Exchange.
The DOT has allocated spectrum to MNTL for 5G trials in Delhi. It will conduct trials in partnership with C-DoT. On this announcement, the stock price surged. In fact, the MNTL shares have given around 124% return in the last year.
MTNL reported a revenue of Rs 1,149 Cr and a net loss of Rs 2,603 Cr in FY22. The losses can be attributed to the reduction in revenue and increased competition leading to tariff reduction. MTNL has a zero promoters pledge. A few red flags for the company can be the high-interest payments compared to earnings and the inability to generate cash for some time now.
• Hold MTNL at the target price of 22.30
Reliance Industries Ltd (Reliance JIO)
It must be noted that Reliance JIO is not a listed company. It is a part of Reliance Industries. In 2016, RIL launched JIO which turned out to be the disruptor of the telecom industry. With JIO, they introduced 4G services in the Indian market at rock bottom prices which were approximately 95% lower than its competitors. The voice calls and OTT platforms of the company were offered for free along with its SIM cards.
JIO now wants to be the leader in the 5G segment as well. It has developed a 100 percent home-grown and comprehensive 5G solution, which is fully cloud-native and digitally managed. The company has successfully conducted trials of connected drones on its indigenous 5G network. It has partnered with Qualcomm to manufacture critical equipment for the 5G ecosystem in India.
In FY21, RIL reported Rs 4,66,924 cr in revenues out of which Rs 90,287 cr was earned from JIO services. The net profit of RIL was Rs 49,128 Cr for FY21. JIO has diversified into other verticals including JioMart, JioUPI, JioPOS, and JioSTB out of many.
In the spectrum auctions, Reliance Jio Infocomm spent Rs. 88,708 crores to acquire 220MHz airwaves in the expensive 700MHz band. The amount is almost twice of what Airtel, the second largest bidder paid.
• Buy reliance industries ltd. at 2550 Target 2700,2780 Stop loss 2430
HFCL (also Himachal Futuristic Communications Limited) is an Indian telecom company that was incorporated in 1987. It serves various industries, such as telecommunications, security, railways, textiles, and Cable fiber.
It is building a portfolio of 5G products including 5G Radio Access Network (RAN) and 5G Transport equipment, both for Indian and foreign markets. The 5G RAN portfolio will comprise products such as Macro Radio unit, cell site router, and aggregation routers. It is also looking to tap the ₹1-lakh crore 5G market opportunity in India, and exports to West Asia, South-East Asia, and Europe.
On the financial front, HFCL earned total income of Rs 4,727 Cr and a Net profit of Rs 313 Cr in FY22. The company has seen improved cash flow generation in the last two years. The promoter’s pledge stands at 44.72%.
• Buy HFCL at 75 Target 84,88 Stop loss 67
ITI (Indian Telephone Industries) Limited is a government-owned telecommunications equipment manufacturing company in India. It is under the ownership of the Department of Telecommunications. It has contributed to 50% of the present national telecom network in the country.
The company is into telecom equipment providing equipment to BSNL, MTNL, and Defence. It also plans to improve and invest in technology by acquiring it from strategic partners, with a particular focus on high-growth industrial categories. The company manufactures 5 G-enabled devices so as to smoothen the test trial of 5G deployment.
The PSU reported a revenue of Rs 1,861 Cr whereas the net profit was Rs 121 Cr in FY22. Due to the high debt in the company, the interest burden is higher than the earnings. On the positive side, the company has seen a growth in net profit margin and the promoter’s pledge is zero.
• Buy ITI at 110 Target 124,130 Stop loss 99
Sterlite Technologies Ltd
Sterlite Technologies Ltd (STL) is an Indian multinational technology company. It is specialized in optical fiber and cables, hyper-scale network design, and deployment and network software. It has a global presence with offices in China, US, SEA, Europe, and MEA. The company plans to combine the power of optical, wireless, virtualization, and deployment methodology to build a robust 5G infrastructure for India and the world.
In that attempt, STL has developed Opticonn, which is a high-power optical connectivity solution. It has launched its Accellus solution that includes 5G multi-band radios co-developed in partnership with Facebook Connectivity. In addition to that, it has also developed O-RAN compliant indoor small cells, outdoor WiFi6 radio solutions, and RAN Intelligent Controller (RIC).
In FY21, the company earned a revenue of Rs 5,754 crores and a subsequent net profit of Rs 62 Cr. Sterlite has zero promoter’s pledge. The company has witnessed a declining net profit margin over the last 2 years. The cost of long-term projects of the company is also growing YOY.
• Buy STL at 165 Target 180,192 Stop loss 154
Tata-owned Tejas Networks is an optical, broadband, and data networking products company based in India. It has built many IPs in various areas of Telecom networking and has emerged as a major exporter to other developing countries in Southeast Asia and Africa. Tata Group acquired a 43.35% stake in Tejas Networks in order to make entry into the Telecom equipment market.
Tejas Networks is into the manufacturing of telecommunications equipment and has multiple licenses to export its product to various countries. The company has patented its products in 5G equipment. It bagged the deal for Optical Networks expansion deal from Airtel. It is also expected to benefit from the PLI scheme to promote Telecom equipment manufacturing in India.
Coming to the financials of the company, it earned a revenue of Rs 551 Cr and posted a net loss of Rs 63 cr in FY22. One of the strengths of the company is that it has no debt. Further, the promoter’s pledge also stands at Zero. However, Tejas network has not been able to generate adequate cash flow and the net profit margin has also been declining for the last 2 years.
• Buy Tejas networks at 600 Target 700,760 Stop loss 520
Indus Towers Limited is an independently managed company offering passive infrastructure services to telecom operators and other wireless services providers such as broadband service providers. Incorporated in November 2006, Its market capital is $6 billion with $800 million net profit. Indus Towers Limited has been promoted under a joint venture between entities of Bharti Group including Bharti Infratel (rendering telecom and tower infrastructure services in India under the brand name Airtel and Bharti Infratel Limited respectively) and Vi (rendering telecom services under the brand name Vodafone and Idea) to render passive infrastructure services to telecom service providers.
Indus Towers Limited has over 175,000 towers and 319,100 co-locations and a nationwide presence covering all 22 telecom circles, it has the widest coverage in India and has already achieved 289,000 tenancies, a first in the telecom tower industry globally. Indus Towers Limited is formed by the merger of Bharti Infratel Limited and Indus Towers. This combined strength makes Indus Towers one of the largest telecom tower companies in the world. Some of its major customers are Airtel, Bharti Hexacom, Jio and Vi.
• Buy Indus towers at 190 Target 202,215 Stop loss 182