Apr 24, 2012, 05.02 PM IST | Source: Moneycontrol.com

Angel Broking neutral on telecom sector; prefers Bharti

Angel Broking has come out with its report on telecom sector. The research firm prefers Bharti Airtel 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.

Angel Broking has come out with its report on telecom sector. The research firm prefers Bharti Airtel due to its low-cost integrated model, potential opportunity to scale up in Africa, established leadership in revenue and subscriber market share, and relatively better KPIs.

"Cellular Operators Association of India (COAI) reported GSM net subscriber addition data for March 2012, which was the lowest since the past six months. The subscriber base grew by merely 1.0% mom to 664.1mn. Net subscriber addition number stood at just 6.9mn in March 2012, down 24.8% mom. GSM subscriber net addition was largely led by incumbents along with Uninor.

In March 2012, net GSM subscriber addition was surprisingly led by Bharti Airtel (Bharti), which added whopping 2.5mn subscribers (36% of the total net subscriber addition), up substantially by 37.3% mom. We believe this was primarily because - 1) subscribers now want to switch to a more reliable service provider after the cancellation of 2G licenses of various other telecom players and 2) aggressive marketing campaigns (Airtel money, my Airtel my offer) and offers launched by the company. This led to an increase in its overall subscriber market share to 27.3% in March 2012 from 27.2% in February 2012. Bharti was followed by Idea (for the first time in the past eight months, Idea lagged Bharti), which added 2.0mn subscribers in March 2012. Uninor (whose net subscribers are growing aggressively since the past six months despite its licenses being cancelled in all the 22 circles) added 1.3mn subscribers in March 2012. Net subscriber addition of Vodafone and BSNL remained subdued at 1.0mn and 0.9mn, respectively. S Tel and DB Etisalat, again in March 2012, witnessed nil subscriber addition due to intentions of the companies to shut down their operations post the cancellation of 2G licenses. Videocon also witnessed net reduction of 0.2mn subscribers from its subscriber base and, according to media reports, Videocon is going to wind up its services in all circles, excluding those having over 5lakh customers, following the cancellation of its licenses by the Supreme Court. Circles namely Tamil Nadu, Haryana, Gujarat, Mumbai and MP have the largest Videocon subscriber base.

In March 2012, net addition run rate of all circles declined, highest being for Metro circles, which reported net reduction of 0.1mn subscribers, taking its total subscriber base to 77.3mn. In A circle, 2.1mn subscribers were added in March 2012 as against 3.9mn in February 2012, taking its total subscriber base to 228.7mn. Net subscriber addition in A circle was led by Uninor, which reported addition of 0.9mn subscribers, followed by Bharti, BSNL and Idea , which reported 0.6mn, 0.5mn and 0.5mn subscribers, respectively. Subscriber addition run rate in B circle was largely flat mom at 3.4mn, while C circle reported addition of 1.5mn subscribers as against 1.2mn in February 2012.

For Bharti and Idea, net subscriber additions were largely 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 seven 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 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," says Angel Broking research report.

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To read the full report click here

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