GSM subscriber analysis | Telecom

November 22, 2011 Srishti Anand

+91 22 3835 7800 Ext: 6820 srishti.anand@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 2011, again grew moderately by 1.2% mom in October 2011. Net subscriber addition number stood at 7.1mn in October 2011, taking the total GSM subscriber base to 625.4mn. Even though the mom declining trend in subscriber net addition was altered, GSM subscriber net addition data was weak across all telecom operators, except Idea and Uninor.

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

Operator-wise highlights
In October 2011, net addition run rate on mom basis for most telecom operators improved slightly, aided by the festive season. Among incumbents, Bharti Airtel (Bharti) and BSNL reported almost stagnant mom net subscriber addition at 0.9mn and 0.5mn, respectively, for October 2011. Idea again maintained its lead in net subscriber additions by adding 1.6mn subscribers, increasing its subscriber market share to 16.3% from 16.2% in September 2011. Vodafone reported net subscriber addition of 0.9mn, up 8.9% mom, taking its total subscriber base to 145.9mn. Aircel reported addition of 0.5mn subscribers, down 18.9% mom. Among new operators, Uninor emerged as a pleasant surprise by adding 2.7mn subscribers (highest amongst all GSM operators), up 39.1% mom. This led to a ISIEmergingMarketsPDF in-sbirisk from 202.58.102.164 on from 4.8% in jump in its subscriber market share to 5.2% in October 20112011-11-24 03:07:14 EST. DownloadPDF. September 2011. Other new operators continued to struggle to gain market share in net subscriber addition. Videocon reported a net decline of 0.2mn subscribers in its subscriber base. Net subscriber addition of S Tel and Loop Mobile declined by 5.0% and 28.0% mom, as these operators added merely 0.04mn and 0.01mn subscribers, respectively.

Circle-wise highlights
In October 2011, net addition run rate of all circles (except Metro circle) improved, the highest being for C circle, which reported addition of 1.1mn subscribers, up 35.8% mom from 0.8mn in September 2011. This led to an increase in net subscriber addition market share of C circle to 15.6% from 12.5% in September 2011. In the Metro circle, merely 0.2mn subscribers were added in October 2011 (down 52.4% mom), with Idea reporting the highest net addition of 0.07mn subscribers, followed by Vodafone and Bharti, which reported net subscriber addition of 0.046mn and 0.043mn, respectively. Subscriber addition run rate of A circle increased by 20.9% mom to 2.4mn in October 2011 as against 1.9mn in September 2011. Subscriber addition in B circle increased to 3.4mn in October 2011 from 3.2mn in September 2011.

Recommendation summary
Company Bharti Airtel Idea Cellular RCom Reco. Neutral Neutral Neutral CMP (`) 379 98 70 Tgt. price (`) Upside (%) FY2013E P/BV (x) 2.3 2.3 0.5 FY2013E P/E (x) 15.3 27.9 12.2 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

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GSM subscriber analysis | October 2011

GSM net additions recover, albeit at a slower pace

In October 2011, the total GSM subscriber base touched 625.4mn, up merely 1.2% mom, as net subscriber addition was low at 7.1mn.

Exhibit 1: GSM subscriber base and net additions Pan India

650 600 550 12.6 11.1 9.5 8.6 7.6 5.3 6.5 16.8 14.7 14.5 18 16 14

(mn)

500 450 400 350

10 7.1 8 6 4

Feb-11

May-11

Dec-10

Total GSM subscribers

Source: Company, Angel Research

Mar-11

Total net additions

Exhibit 2: Total GSM subscribers Incumbents

210 180 150 165 167 169 142 171 143 172 144 173 145 174 146

Exhibit 3: Total GSM subscribers New players

35 30 25 20 15 10 5 0 3 3 7 1 33 7 1 33 7 1 34 7 1 33 6 1 33 6 2 34 6 2 25 26 27 28 30 32

24 ISIEmergingMarketsPDF in-sbirisk from 202.58.102.164 on 2011-11-24 03:07:14 EST. DownloadPDF.

137 92 87 56

139 94 88 57

(mn)

120 90 60 30

95 88 58

96 90 59

98 91 59

100 91 60

102 92 60

(mn)

Apr-11

May-11

Jun-11 Vodafone

Jul-11 Idea

Aug-11 BSNL

Sep-11 Aircel

Oct-11

Apr-11

May-11

Jun-11 Stel

Jul-11 Uninor

Aug-11 Videocon

Aug-11

Sep-11

Sep-11

Oct-11

Jan-11

Apr-11

Jun-11

Jul-11

Oct-11

Bharti

Loop Mobile

DB Etisalat

Source: Company, Angel Research

Source: Company, Angel Research

November 22, 2011

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(mn)

12

GSM subscriber analysis | October 2011

Exhibit 4: Total GSM subscribers

Company (mn) Bharti Vodafone BSNL Idea Aircel MTNL Loop Mobile S Tel Uninor Videocon DB Etisalat Total 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 3.2 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

Source: Company, Angel Research

In October 2011, net subscriber addition stood the highest for Uninor, which added whopping 2.7mn subscribers, taking its total subscriber base to 32.3mn. Majority of its subscriber additions came in from Gujarat, Maharashtra, WB, Bihar and UP (E) and UP (W) circles. Amongst incumbents, Idea reported the highest net subscriber addition of 1.6mn, taking its total subscriber base to 101.8mn. Majority of the subscriber addition in Idea came from Maharashtra, MP, Rajasthan, Haryana, UP (E), Mumbai and Bihar circles. On the other hand, Bharti and Vodafone added merely 0.9mn subscribers each, taking their total subscriber base ISIEmergingMarketsPDF in-sbirisk from 202.58.102.164 on 2011-11-24 03:07:14 EST. DownloadPDF. to 173.7mn and 145.9mn, respectively. BSNLs net subscriber addition growth was the highest amongst all incumbents at 13.7% on mom basis; however, in absolute terms, the company added merely 0.5mn subscribers, taking its total subscriber base to 91.6mn. Aircel added just 0.5mn subscribers, taking its total subscriber base to 60.3mn. Among new players, Videocon reported a net decline of 0.2mn subscribers in its subscriber base.

Exhibit 5: GSM subscriber net addition Incumbents

2.5 2.0

(mn)

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

Source: Company, Angel Research

November 22, 2011

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GSM subscriber analysis | October 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 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 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 0.0 0.1 1.9 (0.1) 0.0 6.5 Oct-11 0.9 0.9 0.5 1.6 0.5 0.0 0.0 0.0 2.7 (0.2) 0.1 7.1

Source: Company, Angel Research

Uninors highest subscriber addition in October 2011 led to a jump in its net subscriber addition market share to 37.4% from 29.4% in September 2011. The companys overall subscriber market share also increased to 5.2% in October 2011 from 4.8% in September 2011.

Exhibit 7: Operator-wise market share in net additions

11.3 13.1 14.6 16.4 18.4 7.3 ISIEmergingMarketsPDF in-sbirisk from 202.58.102.164 on 2011-11-24 03:07:14 EST. DownloadPDF. 29.9 11.7 80 10.7 8.0 10.0 4.9 9.8 6.2 9.2 43.6 23.2 18.9 60 6.9 15.8 22.1 13.1 26.6 40 25.7 24.4 21.7 21.2 19.5 13.0 20 25.7 24.7 21.7 21.5 19.8 14.3 0 (5.0) Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 (20) Bharti Vodafone Idea BSNL Aircel Others
(%)
Source: Company, Angel Research

100

36.6 6.9 7.2 23.0 13.0 13.3 Oct-11

Subscriber market share of Bharti and Vodafone declined to 27.8% and 23.3% in October 2011 from 27.9% and 23.3% in September 2011, respectively, due to sluggish subscriber addition. Idea, on the back of strong subscriber additions, managed to increase its subscriber market share to 16.3% in October 2011 from 16.2% in September 2011.

November 22, 2011

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GSM subscriber analysis | October 2011

Exhibit 8: Operator-wise subscriber market share

100 80 60
(%)

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

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

40 20 0

28.3

28.3

28.3

28.1

28.1

27.9

27.8

Apr-11

May-11 Bharti

Jun-11

Jul-11 Idea

Aug-11 BSNL

Sep-11

Oct-11

Vodafone

Aircel

Others

Source: Company, Angel Research

In October 2011, net addition run rate of all circles (except Metro circle) improved, the highest being for C circle, which reported addition of 1.1mn subscribers, up 35.8% mom from 0.8mn in September 2011. This led to an increase in net subscriber addition market share of C circle to 15.6% in October 2011 from 12.5% in September 2011. For October 2011, in the Metro circle, merely 0.2mn subscribers were added, down 52.4% mom, taking its total subscriber base to 74.4mn. In Metro circle, Idea reported the highest net subscriber addition of 0.07mn subscribers, followed by ISIEmergingMarketsPDF in-sbirisk from 202.58.102.164Bharti, which reported net EST. DownloadPDF. of 0.046mn and Vodafone and on 2011-11-24 03:07:14 subscriber addition 0.043mn, respectively. Subscriber addition run rate of A circle increased by 20.9% mom to 2.4mn as against 1.9mn in September 2011, taking its total subscriber base to 215.1mn. In A circle, Uninor reported the highest net subscriber addition of 0.93mn subscribers, followed by Idea, BSNL, Bharti, Vodafone and Aircel, which added 0.54mn, 0.44mn, 0.24mn, 0.17mn and 0.14mn subscribers, respectively. Subscriber addition run rate in B circle increased to 3.4mn in October 2011 from 3.2mn in September 2011, taking its total subscriber base to 246.1mn.

November 22, 2011

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GSM subscriber analysis | October 2011

Exhibit 9: GSM subscriber base Circle wise

280 240 200 (mn) 160 120 80 40 Apr-11 May-11 Metro
Source: Company, Angel Research

227 200

231 203

235 206

238 208

240 211

243 213

246 215

71

82

73

84

73

86

73

87

74

88

74

89

74

90

Jun-11 A circle

Jul-11

Aug-11

Sep-11

Oct-11

B circle

C circle

Exhibit 10: Circle-wise subscriber net additions

6 4.9 5 4 3.9 4.0 3.4 2.4 2.1 1.4 3.0 2.1 1.5 2.7 2.6 1.3 3.2 2.3 2.0 1.9 3.4

Exhibit 11: Circle-wise share of net additions

100 80 60 50.5 37.5 39.4 37.0 41.8 48.7 48.3 14.3 20.0 17.8 20.3 11.7 12.5 15.6

(mn)

(%)

3 2

2.4

40 29.9 9.0 Sep-11 C circle 33.1 3.1 Oct-11

22.7 43.7 1.1 35.1 0.8 20 40.1 39.7 0.6 1 0.6 ISIEmergingMarketsPDF in-sbirisk from 0.6 202.58.102.164 on 2011-11-24 03:07:14 EST. DownloadPDF. 0.2 0.4 (0.1) 19.9 (0.4) 7.6 7.6 0 (2.3) 0 (4.4) Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 (1) (20) Metro A circle B circle C circle Metro A circle 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 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

If the INR remains depreciated as it is at current levels, we believe the debt position of Bharti, Idea and RCom will significantly increase, as these companies have forex debt in their books. This will eventually lead to higher interest outgo and higher amount of payments for debt retirement, thereby posing a risk to their earnings.

November 22, 2011

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GSM subscriber analysis | October 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%)

November 22, 2011

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GSM subscriber analysis | October 2011

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