Nokia Set To Ride The 4G Wave In India

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India is one of the most promising markets for telecom equipment manufacturer Nokia (NYSE:NOK), with wireless carriers set to make robust investments in 4G LTE roll-outs and network upgrades. Major telecom operators are planning to up the ante with their capital spending, following the country’s largest spectrum auction earlier this year. The estimated market opportunity for telecom equipment companies is over $1 billion, which is expected to rise going forward as 4G deployment across the country accelerates. [1] While competition is high, Nokia appears well-equipped to take advantage of the country’s massive 4G LTE roll-out, as it has been winning deals faster than its peers. Over the past 18 months, the company has bagged over 64 deals with various telecom operators and it expects to add more by the year end. [2]

Nokia already has some major deals with Bharti Airtel, the market leader and the first mover into the 4G space, which bodes very well for the company. It has also inked some valuable deals with other telecom operators including Reliance Jio, Vodafone and Idea Cellular for network upgrades. As these companies continue to expand their respective services across the country, Nokia stands a good chance of winning more contracts, which can keep its growth running.

Our $8 price estimate for Nokia is around 30% higher than the current market price.

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4G Deployment Provides An Opportunity 

With 3G failing to take off in the market, Indian telecom operators are now investing heavily in their networks for 4G deployment. Market leader Bharti Airtel was the first company to enter the 4G arena, and it has launched its services in over 296 cities and towns. Reliance Jio Infocomm is preparing to launch its 4G services commercially by the end of the year, and the entry of other telecom operators (Vodafone India, Idea Cellular and Reliance Communications) into the 4G space is also imminent. According to consulting firm Analysys Mason, Indian telcos will be spending an estimated Rs. 27,000 crore – 30,000 crore (~$4 billion – $4.5 billion) in 2014-2015, which is expected to increase by about 10% annually for the next two-three years. So far, over 9,600 4G mobile sites have been installed across the country, with 73 new 4G networks planned for the next year. [1]

Indian carriers spending heavily on 4G networks presents a huge opportunity for telecom equipment companies such as Nokia, Huawei and Ericsson (NASDAQ:ERIC). These players will be looking at an estimated market (hardware and software) of $1 billion-1.2 billion over the next couple of years. In fact, the market will grow as 4G adoption in the country gains momentum in the coming years, which can prompt telcos to increase spending on network upgrade/expansion. At present, around 5.5 million 4G enabled devices are in use in the country, but only 85,000 users have subscribed to 4G. [1] However, with Bharti Airtel’s expansion into different circles and LTE launches by other telecom operators, 4G penetration is likely to increase going forward. In fact, an Arecent Ericsson Mobility report estimated that 4G networks will cover around 40% of India’s population by 2020. [1] These factors bode very well for telecom equipment companies, especially Nokia, which has been on a deal-winning frenzy over the past year and a half.

Nokia Can Make The Most Of It

India, being at a nascent stage in telecom technology, is one of the most important markets for Nokia going forward. The company had a very strong 2014 in the country, ending the year with over 34 deal wins for services including modernization of 2G and 3G networks, 4G deployment, WiFi solutions, security solutions and device management. Incidentally, Nokia was at the top of the country’s 4G LTE market in terms of contract wins last year and was also the market leader in 2G, 3G, managed services and GSM-railways. In the first half of 2015, Nokia won around 30 deals, and it expects the second half to be equally strong with larger-value deals coming in. The company’s revenue growth during the first half was very strong and the highest since 2008, on account of liberalized spectrum availability, growth in data and better monetization, thanks to a greater number of deals with telecom operators. [2]

Some of Nokia’s latest deals include a $200 million contract from Bharti Airtel to build India’s first 4G network, a 4-year deal with Bharti Airtel to deploy 3-G networks in five new circles, a five-year contract with Vodafone for the modernization of its radio access network (RAN) equipment, and a three-year network upgrade deal with India’s third largest carrier Idea Cellular. [3] Nokia is now working with Vodafone in 19 out of the 22 telecom circles in India, and has also become the biggest equipment provider to Idea Cellular in the country. It has recently landed a $100 million IP multimedia system (IMS) deployment deal with a leading operator in the country.

Although Nokia faces stiff competition from Ericsson, Huawei and ZTE, who also have some contracts with Bharti Airtel and others, the company appears a few steps ahead of its counterparts with orders from telcos accelerating.

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Notes:
  1. Telcos like Nokia Networks, Huawei, Ericsson eye a share of over $1-billion 4G revenue, Economic Times, Aug 25 2015 [] [] [] []
  2. Upbeat Nokia Networks wins 30 deals in H1; beats 2014 figures, Economic Times, Aug 20 2015 [] []
  3. Airtel gives 4-G 3G network deal to Nokia Networks, Economic Times, Jun 30 2015 []