Telecom: September 2012 subscriber additions Subscriber base de-grows for second month - BRICS

Cellular Operators Association of India's monthly subscriber addition numbers for September 2012 showed a decline of 0.3% in subscribers (all figures pertain to September 2012, with a mom comparison, unless specified otherwise). The total number of GSM mobile subscribers in India now stands at 680mn.

We believe that the de-growth in subscriber base is the result of weeding out of multi-SIM subscribers, as telcos withdraw freebies from the market. Also, a high subscriber churn, coupled with a low ARPU from incremental customer base, does not justify the cost of subscriber acquisition, thus leading to lower gross addition and negative net addition.

1.9mn subscribers lost in Sept as against 7.1mn in Aug: In September 2012, subscriber addition remained in the negative territory for the second consecutive month. However, the subscriber loss of 1.9mn was significantly lower than the loss of 7.1mn recorded in August 2012. All operators, except Aircel and Uninor, reported loss of subscribers on an absolute basis.

Bharti, Vodafone and Idea continue to lose subscribers: Bharti, Vodafone and Idea continued to lose subscribers, although at a slower pace in comparison to August 2012. Bharti lost 1mn subscribers, marking the highest loss among its peers, as against 1.9mn in August 2012. The subscriber loss for Bharti was almost evenly distributed, with 466,000 subscribers lost in 3G circles and 516,000 subscribers lost in non-3G circles.With this, Bharti's subscriber base in India now stands at 186mn. Vodafone also reported a decline of 0.7mn subscribers in September 2012, as against a fall of 1.6mn subscribers in August 2012.

Idea witnesses weakness in Bihar, UP (E) and Maharashtra: Idea lost 0.5mn subscribers (as against 1.6mn in August 2012), with the highest losses coming from theUP-East (237,000), Bihar (151,000) and Maharashtra (151,000) circles. Idea lost 212,000 subscribers in new circles and 297,000 subscribers in its existing circles.

Aircel and Uninor stand out: After reporting a massive loss of 2.4mn subscribers in August 2012, Uninor reported an addition of 33,000 subscribers in September 2012.Aircel also continued its streak of positive net subscriber addition, with 0.66mn subscribers added in September 2012, as against 0.8mn in August 2012. Videocon also reported its fourth consecutive subscriber loss of 326,000 (as against 384,000in August)

Valuation and outlook: We continue to maintain a negative outlook on telecom stocks, due to the regulatory headwinds, stretched balance sheets, limited pricing flexibility, and distant payoffs from 3G/4G investments. Bharti trades at 7x FY13 EV/EBITDA and 24.7xP/E; we maintain Reduce with a target price of Rs270. Idea trades at 6.6x FY13EV/EBITDA and 26.6x P/E; we maintain Add with a target price of Rs84.

Source : Equity Bulls

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