Telecom: December 2012 subscriber additions

Subscriber base continues to decline

17 January 2013
BRICS Securities Limited




























As per the Cellular Operators Association of Indias monthly subscriber addition
numbers for December 2012, there was a decline of 1% in subscribers (all figures
pertain to December 2012, with a mom comparison, unless specified otherwise). The
total number of GSM mobile subscribers in India now stands at 660mn.
Decline in subscribers for 4 out of last 5 months: The industry reported a decline of
6.6mn subscribers in December 2012, as against a decline of 9mn subscribers in
November 2012. Subscriber addition has remained negative for the past five months,
except for a slight increase in October 2012, leading to a decline of 24.4mn subscribers.
This has also resulted in a decline of 4.3mn subscribers for the YTD FY13 period, as
against an addition of 70.3mn subscribers for the YTD FY12 period.
We believe that the de-growth in subscriber base is the result of telcos deactivating
inactive SIM cards. Also, the high churn in subscribers, coupled with low ARPU from
incremental customer base, does not justify the cost of subscriber acquisition, thus
leading to lower gross addition and negative net addition.
Vodafone leads decline in subscribers: Bharti lost 1.7mn subscribers in December
2012, as against 2.8mn subscribers lost in November 2012. In December 2012, 5
circles reported net subscriber gains, as against 4 circles in November 2012. 75% of the
decline in Bhartis subscribers came from the circles where it has a 3G license. Bhartis
total subscriber base now stands at 182mn. Vodafone lost 3.3mn subscribers in
December 2012, marking the highest loss among its peers, as against a loss of 2.4mn
subscribers in November 2012.
Ideas subscriber decline reduces significantly: Idea reported a decline of 197,000
subscribers in December 2012, as against 1.6mn subscribers in November 2012. Idea
added 84,000 subscribers in the circles where it has a 3G license and lost 282,000
subscribers in the circles where it does not have a 3G license.
Uninor reports net subscriber addition: Uninor was the only operator to report net
addition of subscribers in December 2012, with an addition of 919,000 subscribers, as
against a loss of 438,000 subscribers in November 2012. Videocon also reported a loss
of 372,000 subscribers in December 2012 (as against loss of 380,000 subscribers in
November 2012).
Valuation and outlook: We maintain a positive outlook on the Telecom sector, as we
do not view the reported decline in subscribers owing to deactivation of inactive SIM
cards as much of a concern. Pricing power is gradually returning to operators and
regulatory uncertainty has also reduced significantly. Bharti trades at 8x FY13
EV/EBITDA and 35.6x P/E; retain Add. Idea trades at 8.8x FY13 EV/EBITDA and 40.2x
P/E; retain Add.
Peer valuation (Rs mn)
Company
CMP Net sales EBITDA Net profit EV/EBIDTA (X) P/E (X)
Rating
(Rs) FY13E FY14E FY13E FY14E FY13E FY14E FY13E FY14E FY13E FY14E
Bharti Airtel 350 804,386 902,038 252,314 299,239 37,299 65,631 8.0 6.8 35.6 20.3 ADD
Idea Cellular 118 219,288 251,514 58,554 70,541 9,678 13,889 8.8 7.3 40.2 28.4 ADD
Source: BRICS Research

Sushil Sharma
+91 22 6636 0073
sushil.sharma@bricssecurities.com

Pranav Kshatriya
+91 22 6636 0093
pranav.kshatriya@bricssecurities.com


Telecom 17 January 2013 | 2


BRICS Securities Limited

Exhibit 1: Subscriber additions for December 2012 (000)
Operator Dec-12 Nov-12 MoM Dec-11 YoY YTDFY13 YTDFY12 YoY Total Subscribers
Bharti (1,704) (2,803) (39.2) 960 (277.5) 628 13,448 (95.3) 181,907
Vodafone (3,289) (2,380) 38.2 905 (463.2) (2,989) 13,177 (122.7) 147,476
Idea (197) (1,560) (87.4) 2,388 (108.3) 1,224 16,877 (92.7) 113,947
BSNL - - - 423 (100.0) 2 6,323 (100.0) 99,976
Aircel (1,976) (1,463) 35.1 686 (388.1) 775 6,801 (88.6) 63,347
Uninor 919 (438) (309.8) 2,125 (56.8) (911) 13,515 (106.7) 41,521
Videocon (372) (380) (2.1) (37) 896.3 (2,311) (1,663) 39.0 3,197
MTNL (2) (1) 204.0 45 (105.0) (474) 250 (289.6) 5,410
Loop - - - 12 (100.0) (233) 142 (263.5) 3,035
Grand Total (6,622) (9,025) (26.6) 7,553 (187.7) (4,290) 70,301 (106.1) 659,815
Source: COAI, TRAI, BRICS Research




















Telecom 17 January 2013 | 3


BRICS Securities Limited




BRICS RECOMMENDATION SCALE

BUY: More than 15% upside
ADD: Upside up to 15% (between 0% and 15%)
REDUCE: Downside up to 15% (between 0%and 15%)
SELL: More than 15% downside
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