GSM subscriber analysis | Telecom

December 21, 2011 Ankita Somani

+91 22 3835 7800 Ext: 6819 ankita.somani@angelbroking.com

Telecom sector
GSM net subscriber addition continues to be low
GSMs net subscriber addition data reported by Cellular Operators Association of India (COAI), which demonstrated a slight recovery in September and October 2011, grew by just 1.1% mom in November 2011. Net subscriber addition number was very low at 6.7mn in October 2011, down by 6.3% mom, taking the total GSM subscriber base to 632.1mn. GSM subscriber net addition data was weak across all telecom operators, except Idea and Uninor.

Operator-wise highlights
In November 2011, net subscriber additions were largely led by incumbents, with Idea (again maintaining its lead position) and Aircel reporting a 32.6% and 37.7% mom increase in subscriber addition run rate, respectively. Idea and Aircel added 2.2mn and 0.7mn subscribers, taking their total subscriber base to 104mn and 61mn, respectively. This led to an increase in Ideas subscriber market share to 16.5% from 16.3% in October 2011. Among other incumbents, Bharti Airtel (Bharti), Vodafone and BSNL reported almost stagnant mom net subscriber addition at 1.0mn, 0.9mn and 0.6mn, respectively. Among new operators, Uninor again emerged as a pleasant surprise by adding 1.9mn subscribers (highest amongst all GSM operators except Idea). This led to a jump in its subscriber market share to 5.4% in November 2011 from 5.2% in October 2011. Other new operators continued to struggle to gain market share in net subscriber addition. Videocon again reported a net decline of 0.6mn subscribers in its subscriber base during the month. Net subscriber addition of S Tel and Loop Mobile declined by 51.3% and 9.0% mom, as these operators added merely 0.02mn and 0.01mn subscribers, respectively.

Circle-wise highlights
In November 2011, net addition run rate of all circles (except Metro circle) declined, the highest being for A circle, which reported addition of 2.0mn subscribers, down 17.1% mom from 2.4mn in October 2011. This led to a decrease in net subscriber addition market share of A circle to 29.2% from 33.1% in October 2011. Net addition run rate of Metro circle rebounded to 0.7mn in November 2011 from 0.2mn in October 2011, with Idea reporting the highest net addition of 0.3mn subscribers, followed by Vodafone and Bharti, which reported net subscriber addition of 0.08mn and 0.04mn, respectively. Subscriber addition run rate of B circle declined by 15.6% mom to 2.9mn in November 2011 as against 3.4mn in October 2011, while subscriber addition in C circle remained flat mom at 1.0mn.

Recommendation summary
Company Bharti Airtel Idea Cellular RCom Reco. Neutral Neutral Neutral CMP (`) 342 83 68 Tgt. price (`) Upside (%) FY2013E P/BV (x) 2.1 1.9 0.4 FY2013E P/E (x) 13.8 23.4 11.8 FY2011-13E EPS CAGR (%) 24.8 13.9 (5.8) FY2013E RoCE (%) 12.7 10.7 3.3 FY2013E RoE (%) 14.9 8.2 2.8

Source: Company, Angel Research

Please refer to important disclosures at the end of this report

GSM subscriber analysis | November 2011

Incumbents uphold subscriber market share

In November 2011, the total GSM subscriber base touched 632.1mn, up merely 1.1% mom, as net subscriber addition was low at 6.7mn.

Exhibit 1: GSM subscriber base and net additions Pan India

650 600 550 11.1 9.5 8.6 7.6 5.3 6.5 7.1 6.7 6 4 14.7 14.5 16 14 12 10 8

(mn)

500 450 400 350

Feb-11

Sep-11

Oct-11

May-11

Total GSM subscribers

Source: Company, Angel Research

Total net additions

Exhibit 2: Total GSM subscribers Incumbents

210 180 150 167 139 94 88 57 169 142 95 88 58 171 143 96 90 59 172 144 98 91 59 173 145 100 91 60 174 146 102 92 60 175 147 104 92 61

Exhibit 3: Total GSM subscribers New players

40 35 30 25 25 26 27 28 30 32 34

(mn)

(mn)

120 90 60 30

20 15 10 5 0 33 7 1 33 7 1 34 7 1 33 6 1 33 6 2 3 4 6 2 34 5 2

May-11

Jun-11 Bharti

Jul-11 Vodafone

Aug-11 Idea

Sep-11 BSNL

Oct-11 Aircel

Nov-11

May-11

Jun-11

Jul-11 Stel

Aug-11 Uninor

Sep-11 Videocon

Oct-11

Nov-11

Jun-11

Mar-11

Aug-11

Apr-11

Jul-11

Nov-11

Loop Mobile

DB Etisalat

Source: Company, Angel Research

Source: Company, Angel Research

December 21, 2011

(mn)

GSM subscriber analysis | November 2011

Exhibit 4: Total GSM subscribers

Company (mn) Bharti Vodafone BSNL Idea Aircel MTNL Loop Mobile S Tel Uninor Videocon DB Etisalat Total May -11 167.1 139.4 87.6 93.8 57.1 5.2 3.1 3.2 25.4 7.1 1.3 590.2 Jun-11 169.2 141.5 88.5 95.1 58.0 5.2 3.2 3.3 26.3 7.1 1.4 598.8 July-11 170.7 143.0 90.2 96.1 58.6 5.3 3.2 3.5 27.4 7.0 1.4 606.4 Aug-11 171.8 144.1 90.6 98.4 59.2 5.3 3.2 3.4 27.7 6.4 1.5 611.8 Sep-11 172.8 145.0 91.1 100.2 59.8 5.3 3.2 3.5 29.7 6.3 1.5 618.3 Oct-11 173.7 145.9 91.6 101.8 60.3 5.4 3.2 3.5 32.3 6.1 1.6 625.4 Nov-11 174.7 146.8 92.1 104.0 61.0 5.4 3.2 3.6 34.2 5.5 1.6 632.1

Source: Company, Angel Research

In November 2011, net subscriber addition stood the highest for Idea, which added whopping 2.2mn subscribers, taking its total subscriber base to 104.0mn. Majority of its subscriber additions came in from Karnataka, Tamil Nadu, AP, MP and WB circles. Amongst other incumbents, Bharti, Vodafone, BSNL and Aircel added 1.0mn, 0.9mn, 0.6mn and 0.7mn subscribers, taking their total subscriber base to 174.7mn, 146.8mn, 92.1mn and 61.0mn, respectively. Among new telecom players, Uninor emerged as a pleasant surprise by adding 1.9mn subscribers. Other new operators continued to struggle to gain market share in net subscriber addition. Videocon again reported a net decline of 0.6mn subscribers in its subscriber base during the month.

Exhibit 5: GSM subscriber net addition Incumbents

2.5 2.0

(mn)

1.5 1.0 0.5 0.0 May-11 Jun-11 Bharti Jul-11 Vodafone Aug-11 Idea Sep-11 BSNL Oct-11 Aircel Nov-11

Source: Company, Angel Research

December 21, 2011

GSM subscriber analysis | November 2011

Exhibit 6: Operator-wise net subscriber additions

Company (mn) Bharti Vodafone BSNL Idea Aircel MTNL Loop Mobile S Tel Uninor Videocon DB Etisalat Total May -11 2.5 2.4 0.5 1.8 1.1 0.0 0.0 0.2 1.1 (0.2) 0.1 9.5 Jun-11 2.1 2.1 0.8 1.4 0.9 0.0 0.0 0.2 0.9 0.1 0.1 8.6 July-11 1.5 1.5 1.8 1.0 0.6 0.0 0.0 0.2 1.1 (0.1) 0.1 7.6 Aug-11 1.2 1.1 0.4 2.3 0.6 0.0 0.0 (0.1) 0.3 (0.7) 0.1 5.3 Sep-11 0.9 0.8 0.5 1.7 0.6 0.0 0.01 0.06 1.9 (0.1) 0.0 6.5 Oct-11 0.9 0.9 0.5 1.6 0.5 0.0 0.01 0.04 2.7 (0.2) 0.1 7.1 Nov-11 1.0 0.9 0.6 2.2 0.7 0.0 0.01 0.02 1.9 (0.6) 0.0 6.7

Source: Company, Angel Research

Ideas highest subscriber addition in November 2011 led to a jump in its net subscriber addition market share to 32.5% from 23.0% in October 2011. The companys overall subscriber market share also increased to 16.5% in November 2011 from 16.3% in October 2011.

Exhibit 7: Operator-wise market share in net additions

100 80 60
(%)

13.1 11.7 4.9 18.9 25.7

14.6 10.7 9.8 15.8 24.4

16.4 8.0 23.2 13.1 19.5 19.8 Jul-11 Vodafone

11.3 7.3

29.9 9.2 6.9 26.6

20.8 36.6 6.9 7.2 23.0 13.0 13.3 Oct-11 Others 10.1 8.3 32.5 13.9 14.4 Nov-11

43.6

40 20 0

21.2 13.0 21.5 (5.0) Aug-11 Idea BSNL

25.7 May-11

24.7 Jun-11 Bharti

14.3 Sep-11 Aircel

(20)

Source: Company, Angel Research

Subscriber market share of Bharti declined to 27.6% in November 2011 from 27.8% in October 2011; however, subscriber market share of Vodafone, BSNL and Aircel remained almost constant mom at 23.2%, 14.6% and 9.6% in November 2011, respectively. Uninor, on the back of strong subscriber additions, managed to increase its subscriber market share to 5.4% in November 2011 from 5.2% in October 2011.

December 21, 2011

GSM subscriber analysis | November 2011

Exhibit 8: Operator-wise subscriber market share

100 80 60 7.7 9.7 14.8 15.9 23.6 7.8 9.7 14.8 15.9 23.6 7.9 9.7 14.9 15.8 23.6 7.8 9.7 14.8 16.1 23.6 8.0 9.7 14.7 16.2 23.5 8.3 9.6 14.6 16.3 23.3 8.5 9.6 14.6 16.5 23.2

(%)
40 20 0 May-11 Jun-11 Bharti Jul-11 Vodafone Aug-11 Idea Sep-11 BSNL Oct-11 Nov-11 Aircel Others

28.3

28.3

28.1

28.1

27.9

27.8

27.6

Source: Company, Angel Research

In November 2011, net addition run rate of all circles (except Metro circle) declined, the highest being for A circle, which reported addition of 2.0mn subscribers, down 17.1% mom from 2.4mn in October 2011. This led to a decrease in net subscriber addition market share of A circle to 29.2% in November 2011 from 33.1% in October 2011. Net addition run rate of Metro circle rebounded to 0.7mn in November 2011 from 0.2mn in October 2011, with Idea reporting the highest net addition of 0.3mn subscribers, followed by Vodafone and Bharti, which reported net subscriber addition of 0.08mn and 0.04mn, respectively. In November 2011, 2.0mn subscribers were added in A circle as against 2.4mn in October 2011, taking its total subscriber base to 217.1mn. In A circle, Idea reported the highest net subscriber addition of 1.06mn subscribers, followed by Uninor, Bharti, Aircel and Vodafone, which added 0.68mn, 0.26mn, 0.20mn and 0.15mn subscribers, respectively. Subscriber addition run rate of B circle declined by 15.6% mom to 2.9mn in November 2011 as against 3.4mn in October 2011, while subscriber addition in C circle remained flat mom at 1.0mn.

Exhibit 9: GSM subscriber base Circle wise

280 240 200 231 203 235 206 238 208 240 211 243 213 246 215 249 217

(mn)

160 120 80 40 May-11 Jun-11 Metro Jul-11 A circle Aug-11 Sep-11 Oct-11 Nov-11 B circle C circle 73 84 73 86 73 91

87

74

88

74

89

74

90

75

Source: Company, Angel Research

December 21, 2011

GSM subscriber analysis | November 2011

Exhibit 10: Circle-wise subscriber net additions

5 4 4 3 3 2 2 1 1 0 (1) May-11 2.1 0.6 2.4 4.0 3.4 3.0 2.1 1.5 1.3 0.6 0.8 0.6 0.2 Oct-11 Nov-11 3.4 2.7 2.6 3.2 2.3 2.0 2.4 2.9

Exhibit 11: Circle-wise share of net additions

100 80 60 20.0 17.8 20.3 11.7 12.5 15.6 16.9

37.5

39.4

37.0 41.8

48.7

48.3

43.4

(mn)

(%)

1.9

2.0 1.1 0.7 1.1

40 22.7 20 19.9 0 May-11 (20) Metro A circle B circle C circle 7.6 Jun-11 (2.3) Jul-11 35.1 43.7 40.1 7.6 Aug-11 29.9 9.0 Sep-11 33.1 3.1 Oct-11 29.2 10.4 Nov-11

Jun-11 (0.1) Jul-11 Metro A circle

0.4 Aug-11 B circle

Sep-11 C circle

Source: Company, Angel Research

Source: Company, Angel Research

Valuation
For Bharti and Idea, net subscriber additions were along expected lines, thus our estimates remain unchanged. The driving force for the overall sector is higher tariff rates as well as increasing use of value-added services, which will lead to higher ARPUs for all players, thereby aiding profitability. Bharti continues to be a better bet due to its low-cost integrated model (owned tower infrastructure), potential opportunity to scale up in Africa, established leadership in revenue and subscriber market share and relatively better KPIs. However, overall we remain Neutral on the telecom sector.

Risk and concerns

Uncertain regulatory environment: The telecom sector is currently surrounded by a number of policy uncertainties related to spectrum and license fee payments. The Telecom Regulatory Authority of India (TRAI) has deemed that any spectrum held beyond 6.2MHz in a circle market is excess spectrum and has levied a one-time fee on the excess spectrum held by any operator based on a market-based value of spectrum for each circle. Also, telecom licenses in India were issued with validity of 20 years, so licenses will start coming for renewals from 2014, which will again pose a huge financial liability for telecom companies. In FY2015 and FY2016, license renewals for Bharti and Idea are due in eight and nine circles, respectively. Adverse forex movement: Players in the telecom sector (especially Bharti) continue to be haunted by sharp INR depreciation against USD due to huge forex debt in their books. Bharti has foreign currency denominated loans worth ~US$11.5bn in its books. Given the recent INR depreciation against USD, the company will suffer from higher interest outgo and higher amount of payments for debt retirement, thereby posing a risk to their earnings.

December 21, 2011

GSM subscriber analysis | November 2011

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Disclosure of Interest Statement

Analyst ownership of the stock Bharti Airtel Idea Cellular RCom No No No Angel and its Group companies ownership of the stock No No No Angel and its Group companies' Directors ownership of the stock No No No Broking relationship with company covered No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

December 21, 2011

GSM subscriber analysis | November 2011

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