India Mobile Industry Report by Motilal Oswal

8/6/2019 India Mobile Industry Report by Motilal Oswal

1/20

TALK TIMEIndian telecom monthlyGalleryIndustry wireless net additions (m)

23 20 2019 15 13

o. . . .IUs. . . .. . . .c:ro, . . . . ,

. . . .. . . .I.c(J)u.May-I1 subscriber market share (inner)4QFYII AGR market share (outer)

BBhartlAlrtelmRComaVodafoneIiiIBSNL


2/20

MOTILAL OSWAL.fljTI'll'TALK TIME

SIM Special In The Month

Please refer to our India Strategyreport of July 2011

Telecom preview lQFY12Business momentum strong; 3G spectrum amortization and interest costs toimpact earnings: We e xp ect re ve nue m ome ntum to re ma in s tro ng , drive n b y co ntin ue dg ro wth in a gg re ga te m in ute s o f u sag e, re la tive ly s tab le ta riff e nviro nm en t a nd in cre as edda ta u sag e. Am ortiza tio n a nd in te re st co sts re la te d to 3G lice ns e fe e pa id las t ye ar w ouldh it th e P&L o f c omp an ie s fr om lQFY1 2, d ep re ss in g h ea dlin e e ar nin gs .Usage growth robust; slight pressure on tariffs: We e xp ec t RPMdec lin e o f 0 .5 /1 . 7%Q oQ fo r B HA RT I/ID EA in lQ FY 12 vis 1-3% de clin e fo r G SM incum be nts in the las t thre eq ua rte rs a nd a n ave ra ge de clin e o f 7-8% Q oQ in the p re ce din g thre e q ua rte rs . W e e xp ectBHARl1 to re po rt re ve nue g ro wth o f .....% Q oQ , d rive n by .....% m o bile tra ffic g ro wth . W ee xpe ct Q oQ re ve nue g ro wth o f .....% fo r R COM a nd .....% fo r ID EA .Expect slight margin expansion for BHARTl, ReOM; moderation for IDEA: We expe ctEB ITDAm arg in t o i nc rease " '- '40bpQoQ for BHARTI (e x-Af ri ca ) and 70bp QoQ (conso li da ted ),dr iven by o pe ra tin g le ve ra ge in d ome stic a s w ell a s A fric a b us in es s. H owe ve r, fo r ID EA , w ee x pe ct a dju ste d EB ITDA ma rg in to d ec lin e .....ObpQoQ p rima rily d ue to 3G laun ch e x pe n se so ff-s et p ar tia lly b y o pe ra tin g le ve ra ge . F or RCOM ,w e e xp ec t .....0 bp Q oQ EBITDA ma rg ine xp an sio n, d riv en b y h ig he r m a rg in in b ro ad ba nd a nd 'o th er s' s egmen ts .

QoQ PAT trends to remain divergent: We e xpe ct B HA Rl1 's P AT to rem ain flat Q oQ ,d es pite in cr ea se d fin an ce c os t a nd amortiz atio n e xp en se s fo r 3G lic en se fe e, d riv en b y 5%QoQ EB ITDAg row th . IDEA's PAT is lik e ly to d ec lin e QoQ , due to ( 1) o n e- off r ev en ue acc re tio na nd co s t re ve rs als in 4QFYll, a nd (2 ) im p act o f 3G lic en se fe e-r ela te d c os ts b elo w EBITDA .F or R COM , p ro fo rm a PAT s h ou ld g ro w "'2 3% Q oQ p rim arily d rive n by .....% Q oQ EBITDAg ro wth. W e h ave n ot m o de le d cap italiz atio n o f 3G s pe ctrum fe e fo r R C aM .Industry subscriber additions decline significantly: In du s tr y s ub sc rib er n e t a dd s hav ed eclin ed me an in gfu lly in lQ FY1 2 to 1 3m -1 5m p er m o n th v is 1 9m -2 0m in p re ce din g q ua rte rs .W e m odel an ave rage ne t adds run -rate o f 14m /m on th fo r F Y12 a nd 10m /m on th fo r F Y13.W e a re n ot s urpris ed by de clin in g tre nd in n et a dd s an d be lie ve th is is drive n b y (1 ) m ark ets atu ra tio n, e sp ecia lly in u rb an ma rk ets (re al p en etr atio n Is n ow > 50% o n p an - In dia b as is ),and (2) lower aggress io n and high churn rate fo r challenge rs , which Im plies a be tte rco mpetitive en viro nm en t fo r in cum ben ts . W e belie ve traffic gro wth an d data re ve nuec on trib utio n w ou ld b e k ey re ve nu e d riv ers r ath er th an s ub sc rib er n et a dd s, g oin g fo rw ard .MNP update: Re ce nt TRAI d ata o n MNP ( la un ch ed 2 0 J a nu ary 2 01 1) s ug ge sts a n in cr ea sein po rting requests to 8.5m (1% o f subscriber base ) as o f 30 April vte 3.8m (0.5% ofs ub sc rib er b as e) a s o f 2 8 F eb ru ary . In itia l tr en ds im p ly th at MNP re la te d s ub scr ib er ch ur nrem ains ins ign ifican t; our industry in te ractio ns sugges t that even 'revenue ' churn isin s ig n ific an t. H owever , f u ll impac t o f p o te n tia l r en e go tia tio n s in e n te rp ris e ta riffs is lik ely to

July 2011 2


3/20

MOTILAL OSWAL TEtETALK TIME

be co mple te ly vis ible o nly by 2Q FY 12. W e co ntin ue to be lie ve that M NP is un like ly to be ag am e chan ge r, g ive n the large ly pre -paid n ature o f the In dian m arke t (> 96% o f s ubs cribe rbas e) an d hig h churn le ve ls (50-120% pe r ye ar).Valuation and view: Ongo ing po lic y r evamp ( regula to r y r e fo rms ) cou ld d ri ve conso li da ti on,w hich is a po sitive fo r G SM in cum be nts. W e be lieve that m arke t m echan ism co uld le ad toprice dis co ve ry o f 2G s pe ctrum lo we r than 3G /T RA I valuatio ns , as po te ntial 2G s pe ctrums upply has in cre as ed. R eve nue an d E BIT DA g ro wth is lik ely to re bo un d in F Y12, drive n byro bus t traffic g ro wth, lo we r R PM de clin e an d laun ch o f 3G s ervice s. R eite rate B uy o nBHART Iand IDEA .

Expected quarterly performance summary30.06.11 Jun.11

(INR million)Sales EBITDA Net profitVar. Var. Jun.11 Var. Var. Jun.ll Var. Var.

OfoYoY %QoQ OfoYoY %QoQ %YoY %QoQ36.8 2.9 57,255 29.7 5.1 14,078 -16.3 0.5

CMP (Rs) Rating

Bharti Airtel

Comm@ l i p T ~ @ ; Q m m n E '" ' ' " 7.1 2.6 16,810 3.0 5.6 23.2 . ~ $ ~ ; m l , ~ w ; j! it ': ; :, l W m ; i ~ ~ ~ i ( : ,: . , ) : : . '9 ; ? ; : : 1 ' ; ' r ; B ~ i Q ~ : j : ; " : : j i , , ' t ~ 6 ' j [ ~ ~ [ ' ? g ] ~ ; ; 1 : : [ : : n 7 i Q j j::f:(~~~(;\~Hii~1!m&]l)m)Rl6i2]j,.Sector Aggregate 272,614 26.7 3.1 86,134 21.7 4.6 18,033 -19.7 -3.2

July 2011 3


4/20

MOTILAL OSWAL

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TELETALK TIME

Monthly trend analysisStatistical ReviewMay 2011Pan India trend of wireless subscriber base, net adds (m)

P an In da - W r e!e ss S ubs crib er B as e (m ) """'& -Pan Irdia - W reless Ne t Adds (rn)23 23

Industry net adds declinedto 13m-15m in Apr/May-ll

after recording ",20m in2HFY11

Cl'I Cl'I Cl'I Cl'I Cl'I Cl'I Cl'I C l'I C l'I 0 0 0 0 0 0 0 0 0 0 0 0 . . . . ,_ , , _ , ,_ , ,_ ,0 0 0 0 0 0 0 0 0 , _ , ,_ , . . . . ,_ , , _ , . . . . . . . . . . ,_ , . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .L I C I bl 6. t J ~ .: , CI L L I I I I I I I Q I I L L I> - "5 .c !l) >- c: "5 0'1 0. t:l ~ c .c ro > -~ ro : : : : : : : : QJ QJ ro QJ 0. ro : : : : : : : : QJ QJ ro QJ 0. ro:E : . . . . . . . . . . til 0 C . . . . . , L L . . : : : : E : : : : : E : . . . . , . . . . , til 0 C . . . . . L L . . :E : : : : : E :

Wireless net adds (m) trend of leading operators (m)-'IO-Bharti~TataTele --4-Idea -'IO-RCom--+-BSNL+MINL --+-Airce! --+- Vodafone

4

1

Net addsfor majors aretapering-off below

the 3m mark

3

2

a0 0 0 0 0 0 0 0 0 . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .L I C .J_ bl , I I I I I ,! _ L s,> - Co t:: E ; u c: .cCo ro : : : : : : : : ::J QJ ~ ro QJ ro 0. ro-c :E : . . . . , . . . . , Vl 0 Z . . . . , L L . . :E : :E :

Source:TRAIJuly 2011 4


5/20


Wireless net adds (m) trend of new entrants

2.8 -+-Uninor -.--Sistema Shyam -+-Etisalat --t-Videocon ~S Tel

New entrants (includingUninor, net adds-Co fQ ::J ::J (g 2 : i fQ QJ fQ Co fQ< :: E . . . . . . "' " < 0 z . . . . . . u, :: E < :: EAggregate adjusted gross revenue (AGR) of telecom operators (Rs b)

As per TRAI, industry AGR QoQAGRgrowth (%) ~ Adjusted Gross Revenue(Rs b)was up 2% QoQ in 4QFYll. 215 213 221 225200 205 205 204 195 206However, proforma industry 171 185 184 184

AGR was up "'4% QoQadjusting for the 1% QoQ B 9 6decline reported in TRAI 0 0 0data for Bharti (v s ".-4%QoQ growth in reported 0financials for Bharti India -5co co co co 0'1 0'1 0'1 0'1 0 0 0 0 . . . . . . . . . . . . . . ,-(~ ~ ~ ~ ~ ~ ~ ~ . . . . . . . . . . ~ E E E E Emobile) it it0' 2' 0' 0' 0' 2' 0' ~ 0' 0' 0' 0' 0' 2' 0' 0'. . . . . . M ' < t " . . . . . . M . . . . ["'oJ , . . ,


6/20

MOTILAL OSWAL

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THETALK TIME

May 2011: Wireless subscriber market shareO t he r s ( newentrants),A irce l, 6%

7%Bhart i ,22%

Rel ianceComm17%

11% Vodafone,17% ~

May 2011: Circle-wise subscriber mix

'e Circ le ,13%

Metro ,14%

' 9' C i rc le ,39%

May 2011: Wireless net adds market shareO th er s ( ne wentrants),

14%

SSNL+MTNL7% Bhart l19%

IDEA,11% Rel iance

Comm19%

T ata T el e3% 18%

May 2011: Circle-wise net adds mix

Met ro' C ' C i rc l e21%

July 2011 6


7/20


Quarterly trends4QFYll: Gross revenue (GR) market share 4QFYll: Adjusted gross revenue (AGR) market share

Others

TataTele9%

Bharti,32%

Others3%ircel,5%3%

B S N L + M T N L9%

Idea14%21%

14%

4QFYll: Circle-wise GRmix 4QFYll: Circle-wise AGRmix'C'Clrde12% Metro18%

' C ' C i r c le12% Metro15%

' B 'C i rc l e34%

July 2011 7


8/20

MOTILAL OSWAL TElETALK TIME

While Bharti/ldealVodafone's RPM declined

2.4-3.2% QoQ, RCom's RPMincreased 0.4% QoQ;

RCom's RPM remained stablefor the fourth straight

quarter at Rs0.44

Revenue per minute (Rs/min)*0.72 .."._ "."._._.0..,,.. " "."." . " "."._"." _." _._ _--"- ---.----.--- . - .- - -.-.----~--.----.~--------

~Bharti (India) ~Idea ~Vodafone -Ar-RCom

~0.44 0.420.40 41C t> C t > '" '" a a a a ..-! ..-! ,_ , , _ ,~ ~ ~ ~ ,_ , ~ ~ ~ ~ ~ ,_ , > !u, U. LL. (; : U. u.. (;: u,0' 2' 0' ~ 0' 0' 0' 0' 0' 2' 0' 0'..-! M ,_ , N M ' < : I " ,_ , M ' < : I "

Average revenue per user (Rs/month)

~Bharti (India) -+-Idea _,_RComVodafone32 5

Bharti (India) Moblle ARPUdeclined 2.5% QoQ to 250Rs194 (vis estimate of

Rs192) 1 9 4-1711 6 11 0 71 0 0 '" '" C t> C t > a a a a . . . . . . . . . . . . . . . .~ ~ ~ ~ . . . . . . . . . . . . ~ . . . . ~ . . . . ~;: (;: (; : (; : (;:0' 0' 0' 0' 0' 2' 0' 0' 0'. 0' 0' 0'. . . . N M ' < : I " . . . . . M ' < : I " . . . . N M ' < : I "

Bharti/ldea/Vodafone'straffic was up 6-9% QOQ i

Rcom's traffic grew3.2%QoQ

Wireless traffic (billion mins) *225 , ' 'M. __" . . _._._ _ __ ._ . _ -"._-"_."""""""".------.-.- -._-"" ---- - _ -._._ " - _. -_ _ ..- _ .._ .. - _.-._ , ,

!iii Idea 1 m Ream it';Vodafone J I l l Bhartl (India)

75

25C t > C t> C t > '" o. a a a ,_ , ..-! ..-! ..-!~ ~ ~ ~ . . . . ~ , _ , ..-! ,_ , ~ ~ ~;: (;: > - (;:U. LL. U. LL.0' 2' 0' ~ 0' 2' 0' ~ 0' 2' 0' 0'. . . . M . . . . M . . . . IV) ' < : I "

Source: Company/MOSL

* Vo da fo ne RPMand tr affic a dju ste d fo r o n-n et tra ffic to ma ke It compa ra ble w ith re po rtin go f o th er o pe ra to rs . V od afo ne c ou nts o n-n et m in ute s o nc e w hile o th er o pe ra to rs re po rt It a s2 m i nu te s .

July 2011 8


9/20

MOTILAL OSWAL TElETALK TXME

Rural subscribers havestagnated at "'33% for thepast four quarters (vs urban

subscribers of 67%)

GSM subscriber mix ("'85%in 3QFYll) has been

increasing over the pasteight quarters

Rural and urban subscriber mix

75%eRuralsubscribers(% of total)

71% 73% 72% 71% 70%

Urbansubscribers(% of total)

69% 67% 67% 67% 67%

GSM and CDMA subscriber mix

o. . . . . .it0'Mo. . . .> -u..~

. . . . . .. . . .it0'. . . .. . . .. . . .> -R :

. . . .. . . .> -~M

74%

m ; COMA subscribers(% of total)

74% 74% 76% 77%

GSM subscribers(% of total)

79% 80% 82% 83% 84% 85%

oE0'. . . . . .o. . . .> -u. .0'M

0'>~0'Mo. . . .> -~

. . . .. . . .it0'. . . .. . . .. . . .it2'

. . . .. . . .> -~MSource:TRAI

July 2011 9


10/20

MOTILAL OSWAL

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TELETALK TIME

Tata Tele: Circle wise grossrevenue share (%)Delhi 9Mumbai 13Kolkata 13Maharashtra 10Gujarat 8A.P. 13Karnataka 12T.N. (IncL Chennal) 6Kerala 6Punjab 8Haryana 13U.P.(W) 8U.P.(E) 5Rajasthan 6M.P. 9W.B. &A&N 4H.P. 4Bihar 8Orissa 9Assam 2N.E. 2Jammu & Kashmir 4Total 9Source: TRAI/MOSL

Monthly UpdatesTata DOCOMOtariff hike an incremental positive; RPMoutlookunchangednear-terma Tata DOCOMO ,th e GSMb ra nd o f T ata T ele se rv ic es is su ed a n otic e th at n ew s ub sc rib er s

jo in ing the ne two rk fro m June 16th 2011 w ill have to pay highe r rates fo r S TD callsafte r o ne ye ar o f activatio n an d als o in cre as ed S M S tariffs . T ata Te le se rvice s has a"'9% re ve nu e ma rk et s ha re o n a p an -In dia b as is (in clu din g CDMA )a nd h as > 5% ma rk ets ha re in m o s t c ir cle s.

a W hile th is de ve lo pm en t re in fo rce s o ur view that tar iff e nviro nm en t Is im pro vin g an din dica te s m o re ra tio na l p ricin g fro m T ata DOCOMOg o in g fo rw ard, w e h ig hlig ht th at:(1) T here w ould be n o im pact o n tariffs in the n ear-te rm ; (2) T he tariffs fo r ex is tin gs ub sc rib er s r ema in u nc ha ng ed (T ata DOCOMOhad o ffe re d 1 p/s ta riff fo r life ); a nd (3 )C hu rn ra te in th e in du stry re m ain s h ig h a t 8-1 0% p er m o nth im p lyin g th at a n a ve ra ges ub sc rib er a ctu ally le av es th e n etw o rk w ith in th e fir st y ea r.

a D urin g 1H FY 12 w e co ntinue to e xpect m o derate de clin es in R PM due to (1) fu ll Im pacto f d e clin e s u ffe re d in 4QFY11 ( 2.5 -3% fo r GSM I n cumben ts ), a nd ( 2) s e as o na lw ea kn e ssIn2Q.

a S tructurally, e ffo rts by price leade r like T ata DOCOMO to re ba la nce R PM in dica te simp ro v ed c ompe ti ti ve e n vir o nmen t. Ev er y 1% change in RPM impact s EBITDAfo r Bha rt i/Id e a/RCom by 1 .3 -3 .2% .

a We m ain ta in Buy on Bharti an d Idea.Tata DOCOMO: Tariff changes

Current NewFirst year After first year

Local lp/s lp/s lp/sSTD lp/s 2p/sp/sLocalSMS 60p/sms 100p/sms 100p/smsSTD SMS 120p/sms 150p/sms50p/sms

Source: Company/MOSL

Coursecorrection for the long-terma T ata DOCOMOwa s the firs t o pe ra to r to cu t pricin g fo r lo ng -d is ta nce ca lls m ak in g th em

at p ar w ith o th er lo ca l calls w ith the la un ch o f its tp als a/s eco nd p la n.a F or all new pre -paid subscribe rs jo in ing the Tata DO CO M O n etwo rk from June 16th

2 01 1, lo n g-d is ta nc e (S TD) ta riffs w ill a utomatic ally in cre as e to 2 p/s from 2 nd y ea rv /slp/s in the 1s t y ear.

a S M S tariffs have be en in cre as ed w ith im m ediate e ffe ct by 25-70% . S M S (incls pe cia lSMS ) c on stitu te s 7 .5% o f re ve nu e fo r th e GSM in du stry .

a W e view the vo ice tariff increase e ffective po st o ne year m ore as an o ptio n taken byT ata DOCOMOwhic h c an b e u tiliz ed a fte r o n e y ea r if th e ta riff e nv iro nmen t im p ro ve s b ythen.

a U nlik e T ata DOCOMO , m os t o the r o pe ra to rs d id n ot o ffe r ta riffs fo r life tim e va lid ity a ndthe ir tar iffs p lans are subject to change o nce the tenure o f the tariff schem e ends( ge n er ally o n e y ea r)

10uly 2011


11/20

MOTILAL OSWAL I J ' TElETALK TIMEStructurally, argument for tariff stability gets stronger; significantearnings traction if RPMsurprises positively.. Tata DO CO MO has been one o f the two m ajo r pr ice -leaders in the Indian w ire less

m arke t alo ng w ith R Com. W e belie ve it is like ly to re frain fro m aggre ss ive pricin g an dfo cus o n im pro vin g yie ld g ive n the n egative cash flo ws an d in cre ase in de bt po st 3Gauctions.

.. RC om i s a lre ad y u nd er re -b ala nc in g mode to flu sh -o ut th e "low -RPM " u sa ge a nd imp ro vethe yie ld on its vo ice po rtfo lio resulting in stable R PM fo r R Com over the past fivequarters.

.. C on so lidate d E SITD A change s by 1.3-3.2% an d PA T chan ge s by 3-30% fo r e ve ry 1%de lta in R PM .

Aggregate traffic growth and RPM trends for wireless majors

11ii+~ Q aQ t ra ffic g ro wt h (%) ......-A vg. R P M Q oQ (%)12

-7lQFY10

-B2QFY10 3QFY10

-74QFYiO lQFYll 2QFYll 3QFYll 4QFYl1

Change in consolidated EBITDA for every 1%change in RPM (%)

3.2

2.2

1.3

Bhartl Idea ReamS ou rc e: T R A I/MOSL

Wedon't expectRPMinflection near-term.. O ur re ce nt in te ractio ns w ith w ire le ss com pan ie s in dicate that w ire le ss R PM co ntin ue s

to de clin e, altho ug h at a m o de rate pace ... W e e xpe ct R PM to re main un de r pre ssure in 2Q FY 12 as w ell g ive n se aso nal w eakn ess ... H en ce an y sign ifican t im pro ve me nt in R PM due to lo we r co mpe titive in te ns ity is like ly

o n ly from 3QFY1 2... W e m ode l flat R PM (ex-3G im pact) fo r S harti and Idea o n a Q oQ basis during 3Q FY12

and 4QFY12 .J uly 2 01 1 11


12/20

MOTILAL OSWAL TELETALK TIME

Bhatti: RPM decline trend over long-term (%)

oFY04 F Y O S FY06 F Y 0 7 F Y O B FY09 FYi0 FYll FY12E FY13E

S our ce : C ompan yfMOSL

Maintain Buy on Bharti and Idea R eve nue and EB ITD A g ro wth is ex pected to acce le rate given ro bus t vo lum e gro wth,

s ta ble ta riff e nv iro nme nt a nd u ps id e fr om d ata g rowth p os t 3G la un ch . W e maintain Buy on Bharti an d Idea.

Ju ly 2 01 1 12


13/20


~ ~ BUZZ Idea 4QFYll: Marginally above estimates; EBITDA estimates largelyunchanged; maintain Buy with TP of Rs85 Adjusted revenue and EBITDA up 6% QoQ: Id ea C e llu la r's 4QFY ll r es ults w e re

m a rg in ally a bo ve e stim a te s a lth ou gh re po rte d n um b ers w ere h ig he r d ue to ye ar-e nda dju stm e nts . A dju ste d re ve nu e an d EBlT DA g re w "'6% Q oQ v s o ur e stim ate o f .....% .A dju ste d EBITDA m a rg in re m ain ed fla t Q oQ a t 2 4% (in lin e). 4 QFYll re su lts in clu de d" 'R s 340m non -r ec ur rin g r ev en ue ( pa rt o f o th e r o p er atin g in come ) a n d " ,R s 380m ne tw o rkco st write -backs . R epo rted P AT o f R s2.7b (3% Yo Y and 13% Q oQ ) was bo os ted byfavo rable adjus tm en ts at E BITD A le ve l (re po rte d Q oQ E BlTD A g ro wth o f 13.4% toR s IO .7 5b ) b ut o ff-s et b y h ig he r D&A (p ar tia l3G lic en ce fe e amo rtiz atio n lik ely ) a nd ta xrate (17.5% fo r the quarte r vis ",7% in pas t two quarte rs ). Idea expects to incur aca pe x o f R s4 0b in F Y1 2 vs R s3 2b in F Yll (e xclu din g 3G s pe ctru m fe e).

Operating metrics strong but chum remains high; 3G subscriber base at 1.SSm:Please refer to our detailed report Adjus ted revenue grew 6.2% Q oQ driven by "'9% Q oQ traffic grow th (vs 6 / 8% fo rdated 14 June 2011 Bha rti / V o da fo n e) a nd .....% QoQ RPMde clin e (2 .4% / 2 .8% fo r B ha rti/V o da fo n e). Id ea

re po rte d 4QFYll A RPU of R s1 61 (in lin e), d ow n 4 .2% Q oQ (vs QoQ decli ne o f 2 .5 -2 .8%fo r B harti! V odafo ne ). M o U pe r s ubs cribe r de clin ed 1% Q oQ to 397. M o nthly churnin cre as ed to 10.7% fro m 10% in 3Q FY ll. The co m pan y laun che d 3G s ervice s in 9/11C ir cle s du rin g Ma r ch /Apr il 2 011; 1 .5 5m subs ("'1.7% o f to ta l) h av e a lr ea dy u pg ra de d to3G .

EB ITDAe s tim a te s la rg ely u nc ha ng ed ; 2 2% EB ITDA CAGRo ve r FY l1 -1 3; B uy :We e xp ec tb us in es s m om en tum to re m ain s tro ng d rive n b y fla tte nin g ta riff d eclin es , co ntin ue ds tr on g tr affic g row th a nd in cr ea se d d ata u sa ge p os t 3G r ollo uts c urr en tly u nd er wa y. Wee xp ect 2 2% EBITDA CAGR fo r Id ea o ve r F Yl1 -1 3E . O ur E BIT DA e stim a te s a re la rg elyu nch an ge d b ut e arn in gs a re d ow ng ra de d 2 0-4 0% to re fle ct h ig he r d ep re cia tio n a ndfin an ce c os ts le d by h ig he r ca pe x a nd in cre as e in in te re st rate s. M a in ta in Buy with ap rice targ et o f R s 85.

Performance

Gross RevenueYoY Growth (%)QoQGrowth

EBITDAYoY Growth (%)GoG Growth (%)

8,59919.46.1

8,095 8,14133.4 16.7-5.9 0.627.2 25.8740 938

4796 51302,559 2,013357 372

2,202 1,10152.8 -22.5-25.9 -22.87.4 5.4209 200-9.9 -4.3315 389-6.0 3.70.56 0.51-4.1 -7.8

9.1 0.29,235 8,884 8,18813.9 3.3 8.613.4 -3.8 -1 .1

2,666 2,014 1,791-2.8 -32.2 -18.456.7 -24.5 -10.88.0 5.5 4.9185 182 161-7.5 -1.6 -8.2398 415 3942.3 4.3 -5.10.46 0.44 0.42-9.6 -5.7 -3.4

13uly 2011

2,91112.98.310.0232-8.7399-0.70.58-8.0


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MOTlLAL OSWAL TELETALK TIME

@ ~ BUZZ May-llGSM net adds down 100/0 MoM at 9.Sm; Bharti, Vodafone stable;Idea net adds slip to 1.8m.. G SM s ubscribe r net adds (ex R CO M and Tata DO CO MO ) is 9.5m in M ay-ll vls ll.lm in

A pr-ll, do wn 1 4% M oM an d 10% Y oY .A ll m ajo r o pe ra to rs e xce pt B harti a nd V oda fo nere po rte d lo we r n et ad ditio ns o n M oM b as is ... To tal GSM subscribe r base as reported by C OAl (excl R CO M in 14 circles and TATA

DOCOMO )is u p 1 .6% MoM and 3 8% Y oYto 5 90m . We w o uld n ot b e s u rp ris ed if s ub scr ib era dd itio n s c on tin ue a t lower le ve ls g iv en a lr eady s ig n ific an t w ir ele s s pen e tr atio n (,..,7 0%r epo rte d pen e tr atio n ; " "5 0% r ea l p en e tr atio n ).

.. O ur F Y12 s u bs cribe r e stim ate s in co rp orate n et a dd s at 2m fo r B ha rti an d 2.2m fo r Ide a.

.. W e do no t see any m aterial im pact o f ne t adds assum ptions on earn ings g iven lowincremental t raff ic I r ev en ue c o ntr ib utio n fr om ma rg in al s ub sc rib er s. Eve ry 20% changein m o nthly n et a dd s run -rate im pacts co ns olid ate d e arn in gs by ""0.7% fo r B ha rti a nd""5 .5% fo r Id ea .

.. R eite rate Buy on Bh arti and Idea.Company-wise additions.. B harti's n et a dd s in cre as ed 2% M oM bu t d eclin ed 1 8% Y oY t o 2 .45m. B harti's s ub scribe r

base is up 25% YaY and 1.5% M oM to 167m .II V od afo ne E ss ar re co rde d n et a dd s o f 2.4 5m , u p 2% M oM b ut do wn 6% Y oY ,V od afo ne 's

s ubs criber bas e is up 31% Y aY and 1.8% M oM to 139m .II Id ea 's n et ad ds de clin ed 27% M oM bu t in cre as ed 2 5% Y oY to 1.8m ; Id ea 's s ub scribe r

base reached 94m ; up 41% YaY and 2% M oM .II BSNLne t a dd sw er e d ow n 3 2% MoM and 5 5% YaY .T his is th e fifth consecut ive meaningfu l

decline in net additio ns fo r BSNL (from 3.2m in Dec-lO to 0.5m in M ay-ll). BSNL'ss ubs criber bas e is up 33% Y oY an d 0.5% M oM to 88m ... A irce l's n et ad ds re m ain ed fla t M oM b ut d eclin ed 31% Y oY to 1 .1m; A irce l's s ub scribe rbase is up 42% YoY a nd 2% M oM to 57m .

II U nin or re co rd ed n et ad ds o f 1.1 m in M ay-ll (vIs 1 .4 5m in Apr -ll) ta kin g its s ub scr ib erb as e to 2 5m ; U nin or 's n et a dd s h ave b ee n s te ad ily d eclin in g o ve r th e p as t 3 -4 q ua rte rs .

.. V id eo co n re po rte d n et s ubs crib er de clin e o f D .1 9m in M ay-ll ta kin g its s ubs crib er b as eto7m.

.. S -Tel n et adds de clin ed 9% M oM but in cre as ed 36% Y oY to 0.16m taking its s ubscriberbas e to 3m .

.. E tisalat's ne tadds de clin ed 60% M oM to 0.09m .Market Share (%)

July 2011 14


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MOTILAL OSWAL THETALK TXME

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16/20


MNP: Idea displaces Vodafone to emerge most favoured operatorFo r the firs t tim e in o ver fo ur m onths s ince m obile num ber po rtability (M NP) kicked inacro ss the co un try, Vo dafo ne Ess ar has s lippe d to the n um be r tw o po sitio n o n the lis t o fo pe rato rs w ho g ain ed the m o st n um be r o f c us tom ers , as o f M ay 30. A cco rdin g to the late std ata , f rom th e MNPc le ar in g h ous e , Id ea Ce llu la r h as over ta ke n Voda fo n e , a lb eit ma rg in ally ,to gain the to p spo t.S ou rce : E co nomic T im es

2G scam: No wrongdoing by Tata Teleservices found, CBItelis JPCIn its pro be in to the 2G spectrum scam , the C BI has fo und no evidence o f wro ngdo ing byT ata T ele se rv ic es a nd h as , in fa ct, n o te d th at the c omp an y u nfa irly lo st o ut to Swan T ele comin th e lu cr ativ e De lh i c ir cle .S ou rce : E co nomic T im es

2G spectrum scam: After Tata Tele, Idea gets CBI clean chitT he Ce ntra l B ure au o f In ve stig atio n h as c lo se d Its in ve stig atio n in to Id ea C e llu la r a fte r th eag en cy fo un d n o e vide nce o f w ro ng do in g. It w as o ne o f the 10 com pan ie s that w ere allo tte dspe ctrum in 2008, dur in g the te nure o f the co ntro ve rs ial fo rm er te le co m m in is te r A R aja,th us a ttr ac tin g th e a tte n tio n o f th e in ve s tig ato rs .S ou rc e: E co nomic T im es

CBI reminder to TRAI for assessing loss in 2G spectrum scamCBI, pro bin g the 2G s pe ctrum s cam , has re m in de d te le com re gulato r T RA I to as ce rtain thee xact lo ss to the g ove rn m en t o win g to allo catio n o f s pe ctrum to all o pe rato rs be tw ee n 2001a nd 2 00 8 fo llow in g var yin g e s tima te s .S ou rc e: E co nomic T im es

Airtel3G shrinks the world with launch of international video calling servicesBha rti A irte lla un ch ed its In te rn atio n al V id eo c allin g c ap ab llitie s o n 3G fo r its c us tome rs inIn dia. W ith this , airte l 3G m o bile c us tom ers in the co un try w ill n ow be able to l eve rage a ir te lin te rn et o n 3G to m ake in te rn atio nal vide o calls an d in te rac t face -to -fac e w ith the ir lo ve do n es a nd c olle ag ue s liv in g a br oa d - in sta ntly s ha rin g e xp erie nc es a nd in fo rma tio n . A irte l'sIn te rn atio n al V id eo Callin g is c ur re ntly a va ila ble fo r 2 27 c ou ntrie s. A n a ir te l 3 G c us tome r inIn dia can s ee and talk w ith his frie nds an d re lative s in U SA , C a nada, Ban glade sh face toface thro ug h vide o call at jus t R s.14/m in , w hile o n the m o ve . S im ilar ly , vide o calls to U AE ,S in ga po re , M a la ys ia , S au di A ra bia a nd Oma n a re p ric ed a t R s .2 0/m in .Source : A ir te l. inBharti makes final payment of $ 700mn to ZainP rivate te le com o pe rato r B harti A irte l paid the las t tran che o f U SD 700m to K uw ait-bas edZ ain fo r buyin g its A frica as se ts , com ple tin g the full an d fin al cas h paym e nt o f U SD 9b.S ou rce : E co nomic T im es

Bharti Airtellaunches mobile wallet service in Delhi NCRShar ti A i r te l launched its mob ile walle t s e rv ic e A ir te l Mone y in De lh i NCR . Th e s e rv ic e a llow sAirte l custo m ers to m ake cashle ss paym en ts fro m Rs 10 to Rs 5,000 a day fo r variouss erv ic es s uc h a s u tility bills a nd mo vie tic ke ts . T he te lc o p la ns to ra is e th e u pp er th re sh oldto R s 5 0,000 w ithin tw o m o nths .S ou rc e: E co nomic T im es

July 2011 16


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One-year forward EV/EBITDA---Shart i -RCom-----Idea M M ~ ~ Average

10.38 7.3

6.84 In In


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Ground Reality ~=~

e InSites thePol icyMakerInsights from bureaucratsakeaways fmm site visits

etalsweekly DashboardThe Monthly Auto Update

Indian telecoinmonthly

TELETALKTIME

mPowerpower utilities monthly


20/20

DisclosuresT his r e po rt I s f o r p e r s o n a l i n fo rm a ti o n o f t h e a ut h o r i z ed r e cip ie n t a nd d oe s n o t c on st r u e t o be a ny in ve sl m e n ~ le g a l o r l a xa ti o n a dv ic e 1 0 y o u , T his r e s e a r c h r e p o rt d o e s n o t c on s t i t ut e a n o ff e r, i n vi t at io n o r i n du ce m e n tt o In ve s t I n s ec ur i t i e s o r o th e r In ve st m e n t s a nd M o ti l a l O sw a l S e c u ri t i e s L im i t e d ( h e r e in af t e r r e fe rr e d a s M O S t ) i s n o t s o l i c it i n g a ny acllon b as ed u po n itT his r e p o rt i s n o t t or p ub li c d is t l i b uf l o n a nd h as b e e nfu rn is he d t o y ou s o le ly f o r y ou r i n fo rm a ti o n a nd s ho u ld not b e r e pr o d u ce d o r r e dis tr i b ut e d t o a ny o th e r p e r s on i n a ny f o rm ,U n a ut h o r i z e d d is clo su re , u se , d is se m in a t i o n o r c op yin g ( e it h e r w h ol e o r p a rt i a l) o f t h i s in fo rm a ti o n , i s p ro h ib it e d , T he p e r s on a cc e ss i n g t h is i n fo rm a ti o n s pe ci f i c a l l y a gr e e s t o e xe m p t M O S t a r a ny o f i ts a ff i l i a te so r e m p lo ye es f r o m , a ny a nd a ll r e sp o ns i b i l i l y A ia b il i t y a ri s i n g f r o m s u ch m i s u se a nd a g re es n o t t o h o ld M O St o r a n y o f I t s a ff i l i a te sm e m pl o ye es r e sp o ns i b l e f o r a ny s u ch m is u s e a nd f u r t h er a gr e e s t o h o ld M O S to r a n y o f i t s a ff i l ia te s o r e m pl o ye es f r e e a nd h ar m le ss f r o m a l l l o s5 6s , c o st s , d am a g es , e xp e ns e s t h at m a y b e s u ffe re d b y t h e p er s o n a c c e ss i n g t h i s In fo rm a t i o n d ue t o a ny e rr o rs a nd d e la ys ,T he in fo rm a ti o n c on ta in e d h e r e in is b as ed o n p ub li c ly a va il a bl e data o r o t h e r s o ur c e s b e li e ve d t o b e r e li a bl e , W h il e w e w o u ld endesvourto u pd a t e Ih e In fo rm a ll o n h e r e in o n r e a s o n ab le basls, M O St a nd /o r I t sa ff i l i a t e s a re u nd e r n o o b l i g at i o n t o u pd at e t h e I n f o rm a ti o n, A ls o t h e r e m a y b e r e gu l a to ry , c o m p l i a n ce , o r o th e r r e as o ns t h at m a y p r e ve nt M O S t a nd / o r i t s a f f i l i a te s f r o m d o in g s o , M O S to r a ny o fi t s a f f i l i a te s o re m pl o ye e s s h al l n o tb e in a n y w a y r e sp o ns i b le a n d l i a b le f o r a n y lo ss o re am a ge t h at m a y a ri s e t o a n y p er s o n f r o m a ny In ad v e rt e nt e rr o rin t h e i n f o rm a ti o n c o nt a in ed i n t h is r e po rt , M O S to r a ny o f i t s a ff i l i a te so r e m p lo ye e s d o n o t p ro v id e , a ta ny t i m e , a ny e xp re ss o r im p li e d w a r r a nt y o f a n y k in d, r e ga rd in g a ny m a tt e r p e r t a in in g t o t h is r e po rt , i n clu d in g w it h ou t l i m i t a ti o n t h e Im p li e d w a rr a nt i e s o f m e rc ha n t a bi l i t y , f i t n es sf o r a p ar t i c ul a r p ur p os e, a nd n on -In fr i n ge m e nt T he r e ci p ie n t s o f t h is r e p o rt s ho u ld r e ly o n t h e i r o w n i n ve s t ig a t i o n s ,T hi s r e po rt I s I n te nd ed fo r d is tr i b ut i o n t o In st i t u ti o n a l In ve st o rs , R e c ip ie n t s w h o a re n o t In st l t u U o na ll n ve st o rs s h o u ld s ee k a dv ic e o f t h e i r I n de pe nd en t f i n an cia l aevlsorprlorto t a k in g a n y i n ve s t m e n t d e c is io nb as ed o n t h is r e po rt or fer a n y n e ce s s ar y e xp la n a ti o n o fi t s c on te n t s,M O S t a nd /o r i t s a ff i l i a te s a nd /o re m p lo ye e s m a y h av e i n te re s t s /p o s it i o n s , f i n an cia l o ro th e lW i se in t h e s e cu riU e s m e n t i o n e d I n t h i s r e po rt , T o e nh an ce t r a ns p a r e nc y, M O S t h a s i n co rp o r a te d a D is clo su re o f In te re s tS ta t e m en t i n t h is d oc u m e nt . T hi s s h o u ld , h ow e v e r, n o t b e t r e a t e d a s e n do rs e m en t o f t he v i e w s e xp re ss e d In t h e r e po rt .

D is c l o su re o f I n te r es t S ta t emen t1 . A na ly st o w ne rs hip o f t h e s to ck2 . G ro up /D ir e c t o rs o w ne rs hi p o f t h e s t o ck3 , B ro kin g r e la t i o ns h ip w it h c o m pa n y c o ve re d4 , In ve st m e n t B an k in g r e la ti o ns h ip w it h c o m pa ny c o ve re d

C om p a n ie s w he re t h e r e Is i n t e r e s tN o n eS ha m A ir t e lN o n eN o n e

Analyst Cer t if ica ti onT h e v i e w s e xp re ss e d in t h is r e se a r c h r e po rt a c c u ra t e ly r e fi e ct t h e p er s o na l v i e w s o f t he a na l y s t ( s ) a bo ut t h e s u b je ct s e cu ri t i e s o rl s s u e s, a n d n o p a rt o f t he c o m pe ns a ti o n o f t he r e se ar c h a n a ly s t ( s ) w a s , i s , o rw i l l b e d ir e c t l y o r in d i r e c t l y r e la te d t o t h e s pe c i f i c r e co m m e nd at i o n s a nd v ie w s e xp re ss ed b y r e se a r c h a na ly st ( s ) In t h is r e po rt , T he r e se a r c h a na ly s ts , s t r a te g i s t s , o r r e se a r c h a ss oc ia te s p rln cip a l l y r e sp on si b lef o r p re pa ra ti o n o f M O S t r e se a r c h r e ce iv e c om p e n sa ti o n b as ed u po n v a ri o us fa ct o rs , i n cl u din g q ua li t y o f r e se a r c h, i n ve st o r c li e n t f e e d ba ck , s to ck p ic kin g, c om p e t i t i v e fa ct o rs a nd f i r m r e ve nu es ,Regio n al D is clo sur es ( ou ts id e I nd ia )T hi s r e po rt I s n o t d ir e c le d o r In te nd e d f o r d is tr ib ut i o n t o o ru se b y a ny p e r s on o r e n t i t y r e sid e n tin a s ta te , c ou n t r y o r a ny J ur is dIc ti o n , w h e r e s u ch d is t r ib u t i o n , p ub li c a t i o n , a va il a bi l i t y o ru se w o u ld b e c on tr a ry t ola w , r e gu la t i o n o r w h ic h w o u ld s u bje ct M O S t & i t s g ro u p c om p a ni e s t o r e g is tr a ti o n o r l i c e n si n g r e q ui r e m e n t s w i t h in s uc h ju ri s d ic ti o n s ,F or U .K .T h is r e po rt I s In le nd e d f o r d is t r ib ut i o n o nl y t o p er s o ns h a vin g p ro fe ss io na l e xp e ri e nc e In m a tt e rs r e la ti n g t o in ve st m e nt s a s d es c r ib ed In A rt i c l e 1 9 o ft h e F i n a nc i a l S e r v i c e s a n d M a r k e ts A ct 2 0 0 0 [ F i n a n c i a lP ro m o ti o n ) O rd e r 2005 ( r e fe rr e d t o a s " in v e st m e nt p ro fe ss i o na ls " ) , T hi s d oc u m en t m u st n ot b e a ct e d o n o r r e l i e d o n b yp e r s o ns w h o a r e n o t i n ve st m e nt p r o fe ss io na ls , A ny In ve stm e n t o r i nv e st m e nt a c t i v i t y t ow h ic h t h is d o cu m e n t r e la te s is o nl y a v a il a b le 1 0 i n v e st m e n t p ro fe ss i o na ls a nd w il l b e e ng ag e d In o nly w it h s u ch p e r s o ns ,Fo r U,S.M O S t Is n o t a r e g i s t e re d b ro ke r- d e a le r I n t h e U n i t e d S ta te s ( U ,S ,) a nd , t h e r e fo re , I s n o t s ub je ct t o U ,S , r u le s . In r e li a nc e o n t h e e xe m p t i o n f r o m r e g is tr a ti o n p ro v id ed by R u l e j5a-6 o f t h e U ,S , S e cu ri l i e s E x c ha n g eA ct o f 1 9 3 4, a s a m e n de d ( t h e " E xc h a ng e A ct " ) a n d in te rp re ta ti o n s t h er e o f b y t h e U .S , S ec u riU e s a n d E xc h an g e C om m is s io n ( " S EC ") in o rd e r t o c o nd uc t b us ln es s w it h In st l l u t i o na ll n v e st o rs b as e d In t h e U ,S "M o t i l a l O s w a l h a s e n t e re d in to a c h ap e r o n in g a gr e e m e n t w i t h a U ,S , r e g i s t e re d b ro ke r- d e a le r, M a r c o P o l o S e c ur i t i e s In c, ( " M a r c o P o l o ") ,T his r e po rt I s I n te nd ed fo r d is tr ib ut i o n o n ly t o " M a jo r In st i t u ti o n a l In ve st o rs " a s d e f i n ed b y R u le 1 5a -6 (b )( 4 J o f t h e E xc ha ng e A c t a nd In te rp re ta ti o n s t h e r e o f b y S E C ( he nc e fo rt h r e fe rr e d to a s " m a i o r in s t it u ti o n a li n ve s t o rs ") , T h is d o c u m e n t m u st n e t be a ct e d o n o r r e li e d o n b y p e r s on s w h o a re n o t m a jo ri n su tu ti o n a l i n ve st o rs , A ny In ve stm e n t o rin ve st m e n t a cf i v it y to w h ic h t h is d oc um e n t r e la te s is on ly a va il a bl e t o m a jo rin st i t u ti o n a l I n ve st o rs a nd w il l b e e ng ag e d i n o n l y w i t h m a jo r i n st i t u ti o n a l i n ve st o rs .T he R e s ea rc h A na ly st s c on tr i b U t i n g t o t h e r e p o rt m a y n o t be r e g is te re d /q ua li f i e d a s r e se a r c h a na ly s t w i t h F IN R A , S uc h r e se a r c h a na ly s t m a y n o t b e a ss oc ia te d p e r s on s o f t he U ,S , r e g is te re d b ro ke r- d ea le r, M a r c oP o l o a nd t h e r e fo re , m a y n o t be s ub le ct t o N AS D r u le 2 71 1 a n t i N Y S E R u le 4 72 r e st r i c ti o n s o n c om m u n ic at i o n w i t h a s ub Je ct c om p an y, p ub li c a pp ea ra nc es a nd t r a din g s ec ur i t i e s h e l d b y a r e se a r c h a na ly st a cc o u n t.

MotHal Oswal Securities Ltd3rd Floor, Hoechst House, Nariman Point, Mumbal400 021

Phone: (91-22) 39825500 Fax: (91-22) 22885038, E-mail: reports@motilaloswaLcom

India Mobile Industry Report by Motilal Oswal

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