Telecom: August 2012 subscriber additions Subscriber addition turns negative - BRICS Securities

Cellular Operators Association of India's monthly subscriber addition numbers for August 2012 reported a decline in subscribers by 1% (all figures pertain to August 2012,with a mom comparison, unless specified otherwise). Total number of GSM mobile subscribers in India now stands at 682mn.

7.1mn subscribers lost against addition of 1.7mn: Subscriber addition went in the negative territory with all the operators, except Aircel and Loop, losing subscribers on an absolute basis. We believe that this drop in subscriber addition is a blip and additions will return to positive territory as festival season approaches.

Bharti, Vodafone and Idea report drop for first time: This is also the first time since last three years at least that Bharti, Vodafone and Idea have reported a drop in their subscriber addition. Bharti lost 1.9mn subscribers against the addition of 1.5mn. Subscriber loss for Bharti was almost evenly distributed with 819,000 loss in 3G circles and 828,000 subscriber loss in non-3G circles. Biggest contributors for Bharti's losswere Maharashtra (327,000) and Bihar (227,000) circles. Only 5 out of 22 circles reported positive subscriber addition (105,000). Vodafone also reported a drop of 1.6mn subscribers against addition of 1.2mn.

Idea- weakness in MP and Gujarat: Idea lost 1.6mn subscribers (vs. addition of456,000) with UP-East (368,000), Bihar (298,000) and UP-West (243,000) circles contributing the most. Drop in subscribers for Idea was more severe in its existing(1.5mn) circles than in new circles (135,000). However, the circles where Idea's licenceshave been cancelled by the Supreme Court reported additions of 171,000 subscribers.

Uninor biggest loser; Aircel and Loop stand out: Uninor reported a loss of 2.4mn (vs.loss of 1mn) subscribers, which is the biggest drop so far. With this, net subscriber base for Uninor currently stands at 42mn. Aircel and Loop were clear standouts this month. Aircel reported subscriber addition of 794,000 (vs. 282,000) whereas loop reported an addition of 80,000 subscribers (vs. loss of 155,000). Videocon also reported its third consecutive loss of 384,000 subscribers (vs. 418,000)

Valuation and outlook: We maintain negative outlook on telecom stocks due to regulatory uncertainty and inability of operators to increase prices despite inflationary pressure. Bharti trades at 6.8x FY13 EV/EBITDA and 20.4x P/E; we maintain Reduce with target price of Rs270. Idea trades at 6.8x FY13 EV/EBITDA and 28.3x P/E, maintain Add with target price of Rs85.

Source : Equity Bulls

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