Telecom sector

Please refer to important disclosures at the end of this report 1

Cellular Operators Association of India (COAI) reported GSM subscriber data forJune 2011, which continued its declining trend in this month as well.GSM subscriber net addition data was reported to be weak on mom basis acrossall the telecom operators (except BSNL). The net subscriber addition numberstood at 9.6mn, down 10% mom, taking the total GSM subscriber base to598.8mn in June 2011.

Weakness across the board

Net addition run rate on mom basis for all operators (except BSNL) droppedsteeply (Refer Exhibit: 5 and 6) in June 2011. Among the incumbents, Idea, afteradding 2.5mn plus net subscribers every month from November 2010–April2011, reported a drop in net subscriber additions to merely 1.4mn, down 24.8%mom. Net subscriber addition numbers of Bharti, Vodafone and Aircel also fell by13.5%, 14.5% and 17.3% mom to 2.1mn, 2.1mn and 0.9mn, respectively.However, BSNL, which was reporting mom decline in its subscriber additions sincethe last five months, again registered a 78.8% mom jump in June 2011, with netsubscriber addition of 0.8mn. Subscriber market share of all the incumbentsremained almost flat mom – Bharti at 28.3%, Vodafone at 23.6%, Idea at 15.9%,BSNL at 14.8% and Aircel at 9.7%.

All the new operators reported a sharp decline in subscriber net addition numbersfor June 2011. Uninor, DB Etisalat and S Tel reported 17.4%, 37.1% and 7.8%mom decline in net subscriber additions, with addition numbers of 0.9mn, 0.1mnand 0.2mn, respectively. Loop Mobile emerged as the dark horse and reported a30.8% mom increase in subscriber addition to 0.02mn. Subscriber market shareof all the new players also remained almost stable on mom basis.

Circle-wise highlights

In June 2011, the net addition run rate of Metro circle declined to 0.7mn vs.1.0mn in May 2011. In the Metro circle, in this month again Vodafone had thehighest net additions at 0.21mn, followed by Bharti and Idea reporting 0.17mnnet additions each. Subscriber addition run rate of A circle bounced back to3.0mn from 2.4mn in May 2011. However, subscriber additions in B and Ccircles fell to 3.4mn and 1.5mn from 4.0mn and 2.1mn in May 2011,respectively. This led to a considerable decline in their net subscriber additionmarket share to 39.2% and 17.7% from 41.9% and 22.4% in May 2011,respectively.

Srishti Anand +91 22 3835 7800 Ext: 6820

[email protected]

Ankita Somani +91 22 3835 7800 Ext: 6819

[email protected]

Telecom sector Net subscriber addition down again

GSM subscriber analysis | Telecom

July 15, 2011

Recommendation summary Company Reco. CMP Tgt. price Upside FY2013E FY2013E FY2011-13E FY2013E FY2013E

(`) (`) (%) P/BV (x) P/E (x) EPS CAGR (%) RoCE (%) RoE (%)

Bharti Airtel Neutral 393 - - 2.3 15.0 28.2 12.3 16.3

Idea Cellular Neutral 81 - - 1.9 23.8 11.6 8.3 8.2

RCom Neutral 95 - - 0.5 13.5 4.5 3.1 3.5 Source: Company, Angel Research

GSM subscriber analysis | June 2011

July 15, 2011 2

Incumbents uphold market share in subscriber addition In June 2011, the total GSM subscriber base touched 598.8mn, up 1.5% mom, though net subscriber addition was very low at 8.6mn.

Exhibit 1: GSM subscriber base and net additions – Pan India

12.3 13.6

12.5

15.1 17.2 16.8

12.6

14.7 14.5

11.1

9.5

8.6

4

6

8

10

12

14

16

18

350

400

450

500

550

600

650

Jul-

10

Aug

-10

Sep-

10

Oct

-10

Nov

-10

Dec

-10

Jan-

11

Feb-

11

Mar

-11

Apr

-11

May

-11

Jun-

11

(mn)

(mn)

Total GSM subscribers Total net additions Source: Company, Angel Research

Exhibit 2: Total GSM subscribers – Incumbents

152 156 159 162 165 167 169

124 127131 135 137 139 142

82 84 87 90 92 94 95

81 84 85 86 87 88 88

50 52 54 55 56 57 58

30

60

90

120

150

180

Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11

(mn)

Bharti Vodafone Idea BSNL Aircel Source: Company, Angel Research

Exhibit 3: Total GSM subscribers – New players

3 3 3 3 3 3 32 3 3 3 3 3 3

1920

2223

2425 26

86 7 7 7 7 7

0 0 1 1 1 1 10

5

10

15

20

25

30


(mn)

Loop Mobile Stel Uninor Videocon DB Etisalat Source: Company, Angel Research


July 15, 2011 3

Exhibit 4: Total GSM subscribers

Company (mn) Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May -11 Jun-11

Bharti 152.5 155.8 159.0 162.2 164.6 167.1 169.2

Vodafone 124.3 127.4 130.9 134.6 137.0 139.4 141.5

BSNL 81.4 83.6 85.1 86.5 87.1 87.6 88.5

Idea 81.8 84.3 86.8 89.5 92.0 93.8 95.1

Aircel 50.2 51.8 53.5 54.8 56.0 57.1 58.0

MTNL 5.1 5.2 5.2 5.2 5.2 5.2 5.2

Loop Mobile 3.0 3.1 3.1 3.1 3.1 3.1 3.1

S Tel 2.3 2.5 2.7 2.8 3.0 3.2 3.3

Uninor 18.5 20.3 21.6 22.8 24.2 25.4 26.3

Videocon 8.4 6.0 6.6 7.1 7.2 7.1 7.1

DB Etisalat 0.3 0.5 0.7 1.0 1.2 1.3 1.4

Total 527.7 540.4 555.1 569.6 580.7 590.2 598.8

Source: Company, Angel Research

In June 2011, net subscriber addition stood highest for Bharti and Vodafone, each adding 2.1mn subscribers, taking their total subscriber base to 169.2mn and 141.5mn, respectively. This was followed by Idea, Aircel and BSNL, which added 1.4mn, 0.9mn and 0.8mn subscribers, taking their total subscriber base to 95.1mn, 58.0mn and 88.5mn, respectively.

Among the new players, Uninor added 0.9mn subscribers, leaving behind incumbents such as BSNL. Other players such as S Tel, Datacom and DB Etisalat added 0.2mn, 0.1mn and 0.1mn subscribers, respectively.

Exhibit 5: GSM subscriber net addition – Incumbents

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0


(mn)

Bharti Vodafone Idea BSNL Aircel Source: Company, Angel Research


July 15, 2011 4

Exhibit 6: Operator-wise net subscriber additions

Company (mn) Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May -11 Jun-11

Bharti 3.1 3.3 3.2 3.2 2.4 2.5 2.1

Vodafone 3.1 3.1 3.6 3.6 2.4 2.4 2.1

BSNL 3.2 2.2 1.5 1.4 0.7 0.5 0.8

Idea 3.0 2.5 2.5 2.7 2.5 1.8 1.4

Aircel 1.4 1.7 1.7 1.3 1.1 1.1 0.9

MTNL 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Loop Mobile 0.0 0.0 0.0 0.0 0.0 0.0 0.0

S Tel 0.2 0.2 0.2 0.1 0.2 0.2 0.2

Uninor 2.3 1.8 1.3 1.2 1.5 1.1 0.9

Videocon 0.3 (2.4) 0.6 0.5 0.1 (0.2) 0.1

DB Etisalat 0.1 0.2 0.2 0.3 0.2 0.1 0.1

Total 16.8 12.6 14.7 14.5 11.1 9.5 8.6


BSNL, which was reporting a declining trend in net subscriber additions since the last six months, reversed this trend in June 2011 by adding 0.8mn subscribers vs. 0.5mn in May 2011. This led to a jump in its net subscriber addition market share to 9.8% from 4.9% in May 2011.

Exhibit 7: Operator-wise market share in net additions

18.0 (1.1)

15.3 15.4 18.4 13.1 14.6

18.5

26.1

21.8 22.1 21.7 25.7 24.7

18.4 24.6

24.2 25.2 21.7 25.7 24.4

17.6 19.9 17.1 18.6 22.1 18.9 15.8

19.0 17.4 10.3 9.4 6.2 4.9 9.8

8.5 13.2 11.4 9.3 10.0 11.7 10.7

(20)

0

20

40

60

80

100


(%)

Others Bharti Vodafone Idea BSNL Aircel Source: Company, Angel Research

In June 2011, all the incumbents, on mom basis, sustained their subscriber market share with Bharti at 28.3%, Vodafone at 23.6%, Idea at 15.9%, BSNL at 14.8% and Aircel at 9.7%.


July 15, 2011 5

Exhibit 8: Operator-wise subscriber market share

28.9 28.8 28.6 28.5 28.3 28.3 28.3

23.5 23.6 23.6 23.6 23.6 23.6 23.6

15.5 15.6 15.6 15.7 15.8 15.9 15.9

15.4 15.5 15.3 15.2 15.0 14.8 14.8

9.5 9.6 9.6 9.6 9.6 9.7 9.7 7.1 6.9 7.2 7.4 7.6 7.7 7.8

0

20

40

60

80

100


(%)

Bharti Vodafone Idea BSNL Aircel Others


In June 2011, the net addition run rate of Metro circle declined to 0.7mn vs. 1.0mn in May 2011, taking its total subscriber base to 72.2mn. In the Metro circle, in this month again Vodafone had the highest net additions at 0.21mn, followed by Bharti and Idea, each adding 0.17mn subscribers. Aircel added 0.08mn subscribers in the Metro circle.

A circle witnessed 3.0mn subscriber additions in June 2011, taking its total subscriber base to 205.8mn. This was primarily led by Vodafone, which added 0.76mn subscribers in June 2011 in A circle, followed by Bharti, BSNL, Idea and Aircel, which added 0.57mn, 0.48mn, 0.32mn and 0.29mn subscribers, respectively.

B and C circles witnessed addition of 3.4mn and 1.5mn subscribers, taking their total subscriber base to 234.8mn and 85.9mn, respectively.

Exhibit 9: GSM subscriber base – Circle wise

66 68 69 71 71 72 72

184 187 193 197 200 203 206 204 210 216 223 227 231 235

74 76 78 81 82 84 86

40

80

120

160

200

240

280


(mn)

Metro A circle B circle C circle



July 15, 2011 6

Exhibit 10: Circle-wise subscriber net additions

1.2 1.8

1.4 1.6

(0.4)

1.0 0.7

6.2

3.8

5.1

4.0 3.9

2.4 3.0

7.1

6.1 5.8 6.5

4.9

4.0 3.4

2.2 2.1 2.4 2.4

1.42.1

1.5

(1)

0

1

2

3

4

5

6

7

8


(mn)

Metro A circle B circle C circle Source: Company, Angel Research

Exhibit 11: Circle-wise share of net additions

7.4 13.1 9.5 11.3 (4.4)

10.4 8.1

37.2 27.6 34.5 27.4 39.7 25.4 35.0

42.1 44.0 39.7 44.8 50.5 41.9

39.2

13.3 15.4 16.2 16.5 14.3

22.4 17.7

(20)

0

20

40

60

80

100


(%)

Metro A circle B circle C circle 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. 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.


July 15, 2011 7

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Disclosure of Interest Statement Analyst ownership Angel and its Group companies Angel and its Group companies' Broking relationship of the stock ownership of the stock Directors ownership of the stock with company covered

Bharti Airtel No No No No

Idea Cellular No No No No

RCom No No No No

Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%) Reduce (-5% to 15%) Sell (< -15%)

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


July 15, 2011 8

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