India Telecoms - GSM additions continue to moderate. Remain cautious - Religare

Subscriber additions muted: GSM operators reported muted subscriber net adds at 3.1mn in May vs. 3.5mn in April. The moderation in sub addition was seen for both Idea/Vodafone – sub adds at 0.87mn/0.9mn respectively against additions of 1.3mn/1.4mn in April. Bharti saw net adds recover to 0.85mn from 0.6mn. Uninor and Aircel reported sub adds of 0.15mn/0.28mn respectively.

Most sub additions polarized to B circles: We note that of the 3.1mn sub adds in May, as much as 2.4mn came in B circles. Metros continue to remain muted at 0.2mn, however surprisingly A circles had negligible additions. Within A circles Karnataka, AP and Maharashtra saw subscriber declines which drove the weakness. We believe these declines could be due to circle specific for the individual operators and would wait to see if any trend emerges. Within B circles, UP(E) added 1mn subscribers with all players seeing healthy additions.

Implications for the sector: We have maintained that sub penetration is moderating and 4Q was more likely an aberration led by exit of certain telcos. In our view, overall voice telecom growth in India is slowing and we expect industry revenue growth to moderate to high single digits. While Idea should continue to grow ahead of industry, we believe that expectations for the same are already high and it would be difficult to beat the high growth expectations. Fundamentally we remain cautious on the space given slowing growth environment, risk of RIL entry, stretched balance sheets and regulatory uncertainty.

Source : Equity Bulls

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