Telecom- GSM net subscriber addition momentum continues

Angel Broking has come out with its report on telecom space. The research firm remains Neutral on the sector.

GSM's net subscriber addition data reported by Cellular Operators Association of India (COAI), which is demonstrating a recovery since the past couple of months, grew by 1.3% mom in January 2012. Net subscriber addition number stood modest at 8.4mn in January 2012, up 11.8% mom, taking the total GSM subscriber base to 648.1mn. GSM subscriber net addition was led by incumbents along with Uninor and Videocon.

Operator-wise highlights: In January 2012, net GSM subscriber addition was again led by Uninor, which added whopping 2.5mn subscribers, up 17.3% mom. This led to a jump in its subscriber market share to 6.0% in January 2012 from 5.7% in December 2011. On an overall basis, net subscriber addition in January 212 was led by incumbents, with Idea Cellular (Idea) again maintaining its lead position (after Uninor) in terms of absolute net addition number by adding 1.7mn subscribers; however, relatively, on mom basis, net subscriber addition number of Idea declined by 26.8% mom (2.4mn subscribers added in December 2011). Bharti Airtel (Bharti) reported addition of 1.3mn subscribers, up 35.5% mom, which was a positive surprise. BSNL again regained its position in the top telecom operators, after five months of underperformance, by adding 0.9mn subscribers, up 103.3% mom. Vodafone and Aircel reported addition of 0.9mn and 0.8mn subscribers, taking their total subscriber base to 148.6mn and 62.5mn, respectively.

Among new operators, other than Uninor, Videocon also emerged as a pleasant surprise by adding 0.4mn subscribers (highest in the last 10 months); Videocon was consistently reporting a decline in its subscriber base since the past six months. Other new operators continued to struggle to gain market share in their net subscriber addition numbers. S Tel again reported a net decline of 0.12mn subscribers in its subscriber base during the month. Net subscriber addition of Loop Mobile and Etisalat DB was also very weak at 0.01mn and 0.02mn, respectively.

Circle-wise highlights: In January 2012, net addition run rate of all circles (except A circle in which net subscriber addition was almost flat mom) reported a decent increase, the highest being for Metro circle, which reported addition of 1.0mn subscribers, up 28.9% mom, led by Idea, which reported addition of 0.35mn subscribers, followed by Uninor and Aircel, which reported net subscriber addition of 0.25mn and 0.16mn, respectively. Subscriber addition in A, B ad C circles stood modest at 2.8mn, 3.4mn and 1.2mn, respectively, in January 2012.

In January 2012, net GSM subscriber addition was again led by Uninor, which added whopping 2.5mn subscribers, taking its total subscriber base to 38.8mn. Most of its subscriber additions came from UP, Bihar, Andhra Pradesh, TN, Karnataka and Maharashtra circles. On an overall basis, net subscriber addition in January 212 was led by incumbents, with Idea again maintaining its lead position (after Uninor) in terms of absolute net addition number by adding 1.7mn subscribers, taking its total subscriber base to 108.1mn. Most of its subscriber additions came in from Delhi, Karnataka, UP, MP, Bihar and Rajasthan circles. Amongst other incumbents, Bharti, Vodafone, BSNL and Aircel added 1.3mn, 0.9mn, 0.9mn and 0.8mn subscribers, taking their total subscriber base to 177.0mn, 148.6mn, 93.4mn and 62.5mn, respectively. Among new telecom players, other than Uninor, Videocon also emerged as a pleasant surprise by adding 0.4mn subscribers (highest in the last 10 months); Videocon was consistently reporting a decline in its subscriber base since the past six months. Other new operators continued to struggle to gain market share in their net subscriber addition numbers.

For Bharti and Idea, net subscriber additions were along expected lines, thus our estimates remain unchanged. The Indian telecom sector is currently experiencing heat due to a number of policy uncertainties related to spectrum and license fee payments. Also, INR has depreciated by 9-11% against USD in the past five months, which has increased the liabilities of telecom companies such as Bharti and RCom in INR terms due to huge forex debt in their books. The driving force for the overall sector is higher tariff as well as increasing use of value-added services, which will lead to higher ARPUs for all players, thereby aiding profitability. We prefer Bharti Airtel  amongst telcos 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, due to the risk of increasing license and spectrum charges, slowing voice growth and higher debt/interest burden (adjusted for forex movement), we remain Neutral on the sector.