GSM subscriber analysis | Telecom

August 26, 2011

Telecom sector
Decline in net subscriber addition continues
Cellular Operators Association of India (COAI) reported GSM subscriber data for July 2011, which continued its declining trend in this month as well. GSM subscriber net addition data was reported to be weak on a mom basis across all the telecom operators (except BSNL). The net subscriber addition number stood at 7.6mn, down 11% mom, taking the total GSM subscriber base to 606.4mn in July 2011.

Srishti Anand
+91 22 3835 7800 Ext: 6820 srishti.anand@angelbroking.com

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

Weakness across the board

Net addition run rate on mom basis for all operators (except BSNL) dropped steeply (Refer Exhibit: 5 and 6) in July 2011. Among the incumbents, Bharti and Vodafone reported significant decline in net subscriber addition numbers with net addition numbers dropping to 1.5mn for both, down 28.8% mom from 2.1mn in June 2011. Idea as well continued its declining trend in net subscriber addition numbers in this month as well by adding just 1.0mn subscribers, down 26.0% mom. BSNL emerged as the dark horse by showing strong growth in net subscriber addition numbers and added 1.8mn subscribers, which led to inch up in its subscriber market share by 10bp mom to 14.9%. Subscriber market share of Vodafone remained stable mom at 23.6%, however, market share of Bharti and Idea declined by 20bp and 10bp to 28.1% and 15.8%, respectively. Among new operators, Videocon reported net decline of 0.1mn subscribers it its subscriber base. Net subscriber addition of S Tel and Uninor grew by 21.4% and 12.1% on a mom basis, with addition numbers of 0.2mn and 1.1mn. Subscriber market share of all new operators remained flat on mom basis expect for Uninor. Uninor managed to increase its share by 10bp mom to 4.5%.

Circle-wise highlights
In July 2011, the net addition run rate of Metro circle increased to 0.9mn vs. 0.7mn in June 2011. In the Metro circle, in this month again Vodafone had the highest net additions at 0.29mn, followed by Bharti and Idea reporting 0.14mn and 0.13mn net subscriber additions, respectively. Subscriber addition run rate of A circle, which bounced back in June 2011, again declined to 2.6mn from 3.0mn in June 2011. This led to decline in the net subscriber addition market share of A circle to 34.4% from 35.0%. Subscriber additions in B and C circles also fell to 2.7mn and 1.3mn from 2.7mn and 1.5mn in June 2011, respectively.

Recommendation summary
Company Bharti Airtel Idea Cellular RCom Reco. Accumulate Neutral Neutral CMP (`) 399 96 72 Tgt. price (`) 451 Upside (%) 13.1 FY2013E P/BV (x) 2.4 2.2 0.5 FY2013E P/E (x) 17.3 29.3 10.7 FY2011-13E EPS CAGR (%) 20.4 9.5 2.4 FY2013E RoCE (%) 12.3 9.6 4.4 FY2013E RoE (%) 14.0 7.6 3.3

Source: Company, Angel Research

Please refer to important disclosures at the end of this report

GSM subscriber analysis | July 2011

Incumbents uphold market share in subscriber addition

In July 2011, the total GSM subscriber base touched 606.4mn, up merely 1.3% mom as the net subscriber addition was very low at 7.6mn.

Exhibit 1: GSM subscriber base and net additions Pan India

650 600 550
(mn)

17.2 16.8 15.1 13.6 12.5 12.6 11.1 9.5 8.6 7.6 14.7 14.5

18 16 14
(mn)

500 450 400 350

Oct-10 Nov-10 Feb-11 Sep-10

12 10 8 6 4
May-11

Dec-10

Jan-11

Apr-11

Jun-11

Aug-10

Total GSM subscribers

Source: Company, Angel Research

Exhibit 2: Total GSM subscribers Incumbents

180 156 150 127 120 159 131 162 135 165 137 167 139 169 142 171 143

Exhibit 3: Total GSM subscribers New players

30 25 20 20
(mn)

Mar-11

Total net additions

Jul-11
26 27 7 7 34 1 1 Jul-11 DB Etisalat

22

23

24

25

(mn)

90 60 30

84 84 52

87 85 54

90 86 55

92 87 56

94 88 57

95 88 58

96 90 59

15 10 5 0 3 3 7 3 0 3 3 1 3 7 3 1 3 7 33 7 3 1 1 3

Jan-11

Feb-11 Bharti

Mar-11 Vodafone

Apr-11 Idea

May-11 BSNL

Jun-11 Aircel

Jul-11

Jan-11

Feb-11

Mar-11 Stel

Apr-11 Uninor

May-11 Videocon

Jun-11

Loop Mobile

Source: Company, Angel Research

Source: Company, Angel Research

August 26, 2011

GSM subscriber analysis | July 2011

Exhibit 4: Total GSM subscribers

Company (mn) Bharti Vodafone BSNL Idea Aircel MTNL Loop Mobile S Tel Uninor Videocon DB Etisalat Total Jan-11 155.8 127.4 83.6 84.3 51.8 5.2 3.1 2.5 20.3 6.0 0.5 540.4 Feb-11 159.0 130.9 85.1 86.8 53.5 5.2 3.1 2.7 21.6 6.6 0.7 555.1 Mar-11 162.2 134.6 86.5 89.5 54.8 5.2 3.1 2.8 22.8 7.1 1.0 569.6 Apr-11 164.6 137.0 87.1 92.0 56.0 5.2 3.1 3.0 24.2 7.2 1.2 580.7 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 3.1 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

Source: Company, Angel Research

In July 2011, net subscriber addition stood highest for BSNL which added 1.8mn subscribers. Bharti and Vodafone, each added 1.5mn subscribers (lowest level since last couple of years), taking their total subscriber base to 170.7mn and 143.0mn, respectively. This was followed by Idea and Aircel, which added 1.0mn and 0.6mn subscribers, taking their total subscriber base to 96.1mn and 58.6mn, respectively. Among the new players, Uninor added 1.1mn subscribers, leaving behind incumbents such as Idea and Aircel. Other players such as S Tel and DB Etisalat added 0.2mn and 0.1mn subscribers, respectively.

Exhibit 5: GSM subscriber net addition Incumbents

4.0 3.5 3.0

(mn)

2.5 2.0 1.5 1.0 0.5 Jan-11 Feb-11

Bharti

Mar-11
Vodafone

Apr-11
Idea

May-11
BSNL

Jun-11
Aircel

Jul-11

Source: Company, Angel Research

August 26, 2011

GSM subscriber analysis | July 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 Jan-11 3.3 3.1 2.2 2.5 1.7 0.0 0.0 0.2 1.8 (2.4) 0.2 12.6 Feb-11 3.2 3.6 1.5 2.5 1.7 0.0 0.0 0.2 1.3 0.6 0.2 14.7 Mar-11 3.2 3.6 1.4 2.7 1.3 0.0 0.0 0.1 1.2 0.5 0.3 14.5 Apr-11 2.4 2.4 0.7 2.5 1.1 0.0 0.0 0.2 1.5 0.1 0.2 11.1 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

Source: Company, Angel Research

BSNL, which was reporting a declining trend in net subscriber additions since January 2011, reversed the trend again in July 2011 by adding strong 1.8mn subscribers vs. 0.8mn in June 2011. This led to a jump in its net subscriber addition market share to 23.2% from 9.8% in June 2011.

Exhibit 7: Operator-wise market share in net additions

100 80 60 13.2 17.4 19.9 24.6 15.3 11.4 10.3 17.1 24.2 21.8 Feb-11 Bharti 15.4 9.3 9.4 18.6 25.2 22.1 Mar-11 Vodafone 18.4 10.0 6.2 22.1 21.7 21.7 Apr-11 Idea 13.1 11.7 4.9 18.9 25.7 14.6 10.7 9.8 15.8 24.4 16.5 8.0 23.2 13.1 19.5 19.8 Jul-11

(%)

40 20 0

26.1 (1.1) Jan-11

25.7 May-11 Aircel

24.7 Jun-11 Others

(20) BSNL

Source: Company, Angel Research

In June 2011, BSNL improved its subscriber market share to 14.9% from 14.8% in June 2011. Vodafone managed to sustain its subscriber market share to 23.6% on a mom basis, however Bharti and Idea posted decline in their subscriber market share to 28.1% and 15.8% from 28.3% and 15.9%, respectively.

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GSM subscriber analysis | July 2011

Exhibit 8: Operator-wise subscriber market share

100 80 60 (%) 40 20 0 Jan-11 Feb-11
Bharti

6.9 9.6 15.5 15.6 23.6

7.2 9.6 15.3 15.6 23.6

7.4 9.6 15.2 15.7 23.6

7.6 9.6 15.0 15.8 23.6

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

28.8

28.6

28.5

28.3

28.3

28.3

28.1

Mar-11
Vodafone

Apr-11
Idea

May-11
BSNL Aircel

Jun-11
Others

Jul-11

Source: Company, Angel Research

In July 2011, the net addition run rate of Metro circle increased to 0.9mn vs. 0.7mn in June 2011, taking its total subscriber base to 73.2mn. In the Metro circle, in this month again Vodafone had the highest net additions at 0.29mn, followed by Bharti and Idea reporting 0.14mn and 0.13mn net subscriber additions, respectively. Aircel added 0.07mn subscribers in the Metro circle. Subscriber addition run rate of A circle, which bounced back in June 2011, again declined to 2.6mn from 3.0mn in June 2011, taking its total subscriber base to 208.5mn. This led to decline in the net subscriber addition market share of A circle to 34.4% from 35.0%. Subscriber addition was primarily led by BSNL, which added 0.70mn subscribers in July 2011 in A circle, followed by Idea, Bharti and Vodafone, which added 0.56mn, 0.46mn and 0.43mn subscribers, respectively. B and C circles witnessed addition of 2.7mn and 1.3mn subscribers, taking their total subscriber base to 237.5mn and 87.2mn, respectively.

Exhibit 9: GSM subscriber base Circle wise

280 240 200 216 193 223 197 227 200 231 203 235 206 238 208

210 187

(mn)

160 120 80 40 Jan-11 Feb-11

Metro

68

76

69

78

71

81

71

82

72

84

72

86

73

87

Mar-11
A circle

Apr-11

May-11

Jun-11

Jul-11

B circle

C circle

Source: Company, Angel Research

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GSM subscriber analysis | July 2011

Exhibit 10: Circle-wise subscriber net additions

7 6 5 6.1 5.8 5.1 3.8 2.1 1.4 2.4 1.6 4.0 2.4 1.4 1.0 (0.4) Jan-11 Feb-11 Metro Mar-11 A circle Apr-11 B circle May-11 C circle Jun-11 Jul-11 0.7 6.5 4.9 3.9 4.0 3.4 3.0 2.4 2.1 1.5 0.9

Exhibit 11: Circle-wise share of net additions

100 15.4 80 60 2.7 2.6 1.3 44.0 39.7 44.8 50.5 41.9 39.2 35.8 16.2 16.5 14.3 22.4 17.7 17.4

(mn)

4 3 2 1 0

(%)

1.8

40 20 0 27.6 13.1 Jan-11 34.5 9.5 Feb-11 Metro 27.4 11.3 Mar-11 A circle (4.4) Apr-11 39.7 25.4 10.4 May-11 35.0 8.1 Jun-11 C circle 34.4 12.4 Jul-11

(1)

(20) B circle

Source: Company, Angel Research

Source: Company, Angel Research

Valuation
For Bharti and Idea, such a decline in net subscriber additions was along expected lines, thus our estimates remain unchanged. The driving force for the overall sector is increase in tariff rates as well as increasing use of value added services, which will, in turn, lead to higher ARPUs of all the 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.

August 26, 2011

GSM subscriber analysis | July 2011

Research Team Tel: 022 - 3935 7800

E-mail: research@angelbroking.com

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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%)

August 26, 2011

GSM subscriber analysis | July 2011

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