Institute of Chartered Financial Analysts of India (ICFAI) University 2006 Certification Finance Security Analysis - II - Question Paper

Growth factor

There has been the latest spate of activity in the US, conditions within Europe are improving and emerging markets are seeing much stronger demand than previously estimated. This increase in demand has been attributed to rapidly growing industry segments such as Broadband, Voice over Internet Protocol (VoIP), Streaming Media, IP TV, technological innovations in fiber optics, DWDM and WDM. With the formulation of the Broadband Policy in October 2004 and the following race to build networks that are capable of meeting the broadband subscriber targets laid down by the IT & Telecommunications Ministry, 2004-05 showed a healthy demand growth. There is also an increasing adoption of fiber-based networks by the Cable TV Segment, Multi-Service Operators (MSOs) and E-Governance State Initiatives. Entertainment is likely to be the killer application in a market that boasts of higher cable television penetration than telephone or PC penetration.

Challenges Ahead

The main challenge that the Indian Industry has been facing over the past few years is the reduce in demand from the traditional buyers of cables – mainly from the Government Sectors, as they chose to either optimize the bandwidth capacity utilization of their existing network or to experiment with wireless technologies to achieve their subscriber targets in the shortest time. Today, broadband services, such as BSNL’s DataOne, MTNL’s Tri-Band, are available. These use both ADSL (copper based) and Fiber-based Technologies. Additional fiber-based infrastructure is being readied and the monthly subscriber charges are constantly being revised downwards. This is driving subscriber growth, which in turn is fuelling the demand for Copper Cables and Fiber Optic Cables. The demand growth rate for Copper Telecom Cables has stabilized at 7%- 9% globally and this pattern is expected to continue on for India as well. Over the medium term, the demand in India for Fiber Optic Cables to grow at a CAGR of 17%. These higher off-takes of Fiber Optic Cables will be dependent on the success of broadband services in several pilot cities, which have been initiated in the past few months. On account of the closing demand-supply gap across the industry through normalization of manufacturing capacities around the world, the prices of telecom cables have remained stable. With the rollout of broadband in India, as well as in several global economies, the off-takes of telecom cables are expected to be higher, while the outlook for price remains stable.

Future Outlook

Earning:   Approval pending.