Tele-tracker

September 17, 2010 Price performance...

Bharti Airtel RCOM Idea Tata Tele 1M 12.3 -3.6 3.2 -4.3 3M 32.1 -13.2 37.8 10.4 6M 18.9 2.3 25.9 0.4 12M -14.4 -46.1 -0.5 -29.6

Revival in GSM subscriber addition

Subscriber growth continued unabated in the telecom industry. The industry added 13.5 million GSM subscribers in August 2010 highest since April 2010. Though net adds declined in metros, it was more than compensated in all other circles. Highest traction was seen in C Circles, which added 2.0 million subscribers against just 0.9 million in July 2010. Metros recorded MoM growth of 2.3% while A and B circles grew by 3.1% each and C circles by 3.2%. BSNL and Uninor put up an impressive show. Uninor had highest ever net adds at 2.2 million subscribers while BSNL added 2.3 million subscribers. Subscriber addition for Bharti Airtel was down at 2.0 million subscribers lowest in several quarters. Idea, Vodafone and Aircel maintained their monthly run rate in subscriber addition at 2.0 million, 2.3 million and 1.6 million, respectively.

Subscriber growth
Industry Others* Uninor Aircel % Idea BSNL Vodafone Airtel 0.0 3.7 2.8 3.4 2.1 1.5 10.0 20.0 30.0 40.0 3.0 8.7 32.3

Airtel Decline in net adds

Bharti added 2.0 million subscribers as compared to the past seven months average of 2.9 million. Net adds for Bharti declined for the second straight month. Share in net adds also fell to 15.0% from 22.6% last month. Total subscriber base for Bharti Airtel stands at 141.3 million, with a market share of 30.4% among GSM players.

Uninor Impressive show

Uninor posted its highest ever net adds at 2.2 million subscribers with strong addition coming from Tamil Nadu, Andhra Pradesh, UP (E), UP (W) and Bihar. Share in net adds for August stood at 16.4%.

BSNL Reviving growth

BSNL added 2.3 million subscribers in August 2010. This is very impressive looking at its past four month average of 1.1 million subscribers. The company recorded robust net adds in Haryana, Rajasthan and Orissa.

Source: COAI, ICICIdirect.com Research *Others include MTNL, BPL, STel, Uninor, Datacom, SWAN & Etisalat *Ex-Reliance Telecom and TTSL

New launches
Amid the intense competition, the industry witnessed several new launches by various operators in this month. Videocon launched services in Himachal Pradesh, Andhra Pradesh, Karnataka, Maharashtra, Rajasthan, Bihar, Orissa and West Bengal. The subscriber base for Videocon stands at 3.7 million, up from 2.8 million in July. Aircel launched services in Gujarat, Punjab and Haryana with an impressive net addition of 96,248 subscribers in Punjab. Aircel added 1.6 million subscribers in line with its monthly run rate. Even Loop Mobile launched services in Haryana, Kolkata, Madhya Pradesh, Orissa, Punjab and Rajasthan, while STel ventured into the North East. The subscriber base for Loop Mobile stood at 3.0 million while STel increased to 1.5 million.

Price movement
7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Sep-09 Dec-09 Bharti TTML Mar-10 RCom Jun-10 500 400 300 200 100 0 Sep-10 Idea

Nifty (L.H.S)

Exhibit 1: Performance highlights Analysts name

Karan Mittal karan.mittal@icicisecurities Naval Seth naval.seth@icicisecurities.com

Airtel RCOM Idea

CMP 356 162 75

TP 361 162 72

EPS (Rs) FY10 FY11E FY12E 24.0 20.1 25.8 22.8 8.5 10.5 2.9 2.0 3.5

P/E (x) FY10 FY11E FY12E 14.9 17.8 13.8 7.1 19.2 15.5 25.9 36.8 21.1

EV/EBITDA (x) FY10 FY11E FY12E 8.4 9.0 7.4 7.4 9.8 8.1 9.2 10.4 7.7

Source: Company, ICICIdirect.com Research

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Exhibit 2: Total GSM subscribers

160
Total GSM net adds for August 2010 stood at 13.5 million, vs. 11.5 million subscribers last month. The total GSM subscriber base stood at 465.1 million (ex-RCom and TTSL)

140 120 100 80 60 40 20 Jan' 10 Bharti Airtel Feb' 10 Mar' 10 Apr' 10 IDEA May' 10 Jun' 10 July' 10 Uninor Aug' 10 Others*

Vodafone Essar

BSNL

Aircel Cellular Ltd

Source: Company, ICICIdirect.com Research

Exhibit 3: Subscriber net adds (Ex RCom and TTSL)

16.0 14.0 12.0
Net adds for Airtel declined to 2.0 million. Uninor and BSNL reported handsome net adds at 2.2 and 2.3 million, respectively

10.0 8.0 6.0 4.0 2.0 Jan' 10 Bharti Airtel Feb' 10 Mar' 10 Apr' 10 BSNL May' 10 Jun' 10 July' 10 Uninor Aug' 10 Others*

Vodafone Essar

IDEA

Aircel Cellular Ltd

Source: Company, ICICIdirect.com Research

Exhibit 4: Subscriber net adds (Ex RCom and TTSL)

100%
Share of A circles declined while C circle witnessed impressive growth

80% 60% 40% 20% 0%

3.3 5.1

2.8

2.4 5.8

2.1 4.6

1.9 4.4

2.0 4.5

0.9 4.7

2.0 5.3

5.5

4.3 1.1 Jan' 10

3.7 1.1 Feb' 10

4.6 1.2 Mar' 10 Metro

3.5 1.0 Apr' 10 A' Circle

3.3 1.7 May' 10 B' Circle

4.0 1.7 Jun' 10 C' Circle

4.2 1.8 July' 10

4.9 1.3 Aug' 10

Source: Company, ICICIdirect.com Research

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Exhibit 5: Operator wise share in net adds

100%
Share in net adds for Bharti declined to 15.0% while that for BSNL and Uninor increased

80% 60% 40% 20% 0% Jan' 10 Bharti Airtel Feb' 10 Mar' 10 Apr' 10 BSNL IDEA May' 10 Jun' 10 July' 10 Uninor Aug' 10 Others*

Vodafone Essar

Aircel Cellular Ltd

Source: Company, ICICIdirect.com Research

Exhibit 6: Operator wise net-adds

Subscribers-net adds Jan' 10 Feb' 10 Mar' 10 3.0 3.6 2.5 1.7 2.0 0.7 0.4 13.9 Apr' 10 May' 10 3.0 2.9 1.3 1.5 1.6 0.8 0.2 11.2 3.0 2.6 1.0 1.4 1.6 (0.0) 1.6 11.3 Jun' 10 July' 10 3.0 2.7 1.1 2.2 1.6 1.0 0.7 12.3 2.6 2.4 1.2 1.9 1.6 0.9 1.0 11.5 Aug' 10 2.0 2.3 2.3 2.0 1.6 2.2 1.1 13.5 Bharti Airtel 2.9 2.9 Vodafone Essar 2.7 3.1 BSNL 2.2 1.5 IDEA 2.3 2.3 Aircel Cellular Ltd 2.0 1.8 Uninor 1.3 1.0 Others* 0.5 0.4 Total 13.9 13.0 Source: Company, ICICIdirect.com Research

Exhibit 7: Subscriber market share

Share in net adds Jan' 10 Feb' 10 Mar' 10 31.5 24.9 15.7 15.7 9.1 1.1 2.1 100.0 Apr' 10 May' 10 31.3 24.9 15.5 15.7 9.2 1.2 2.1 100.0 31.2 24.8 15.4 15.6 9.4 1.2 2.4 100.0 Jun' 10 July' 10 31.0 24.8 15.2 15.6 9.5 1.4 2.5 100.0 30.8 24.7 15.1 15.7 9.6 1.5 2.7 100.0 Aug' 10 30.4 24.5 15.1 15.6 9.7 2.0 2.8 100.0 Bharti Airtel 32.1 31.8 Vodafone Essar 24.9 24.8 BSNL 15.7 15.6 IDEA 15.8 15.9 Aircel Cellular Ltd 8.7 8.9 Uninor 0.7 0.9 Others* 2.1 2.1 Total 100.0 100.0 Source: Company, ICICIdirect.com Research

Exhibit 8: Circle-wise subscribers

Circle Jan' 10 Feb' 10 Mar' 10 51.7 141.9 155.8 56.1 405.5 Apr' 10 May' 10 52.7 145.5 160.4 58.2 416.7 54.4 148.7 164.8 60.1 428.0 Jun' 10 July' 10 56.1 152.8 169.3 62.1 440.3 57.9 157.0 173.9 63.0 451.8 Aug' 10 59.2 161.8 179.3 65.0 465.3 Metro 49.3 50.5 A' Circle 133.7 137.4 B' Circle 144.6 150.0 C' Circle 51.0 53.7 Total 378.6 391.6 Source: Company, ICICIdirect.com Research

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Recent events

Bharti gets RBI approval for mobile money services

The Reserve Bank of India (RBI) has allowed Bharti Airtel to collect a maximum of ` 5,000 from customers, which can be converted to virtual money, stored on mobile phones and can be used at outlets that have a tie-up with Airtel. All leading mobile phone companies are also slated to get the semi-closed wallet license over the next couple of months.

Airtel moves closer to introduce outsourcing in Africa

Bharti Airtel will sell the mobile phone towers of its African operations to arm Bharti Infratel, raising badly-needed cash and taking a big step towards replicating the outsourced business model. The deal is expected to be sealed for ` 12,000-15,000 crore by December 2010. Bharti Infratel will, in turn, raise money by selling stakes to sovereign and private equity funds.

Raja opens exit door for new telecom companies

Many of the new operators are finding it difficult to survive in the hyper intensive competitive scenario. These companies, which include Videocon, Sistema Shyam, Uninor, Loop, STel, Etisalat DB and Allianz Infratech, have struggled with their rollout plans. For those who have launched services, the growth in the number of subscribers has slowed down to a trickle. According to media reports, DoT is examining several possibilities, including allowing new companies to merge with larger operators, shortening the three-year period during which the promoter of a new company cannot sell out and relaxing rules to allow incumbents to retain airwaves held by these new companies if a buyout or merger were to happen.

Telecom gear cos to get relief from escrow clause

The government may soon delete the controversial regulation that requires global telecom gear makers to deposit their software codes in the equivalent of a sealed envelop with the Indian security establishment. The telecom department is likely to modify the recently introduced rules regarding the escrow mechanism in the proposed vendor agreement that all mobile service providers have to ink with their foreign gear suppliers before undertaking imports. These changes are set to address the concerns of the worlds biggest telecom gear makers keen to have a piece of the $100-billion market.

GTL Infrastructure calls off merger deal with Reliance Infratel

Reliance Communications' plan to sell its telecoms tower business to GTL Infrastructure has fallen through. The GTL Infrastructure deal, which had been announced in late June, had been called off after the companies failed to reach an agreement on terms. Reliance said in a statement it is in talks with other strategic and financial investors to sell a stake in the business.

Telenor dismisses rumours, will not exit loss-making India venture

The Telenor Group has said it will stay invested in its Indian subsidiary while denying international news reports that it was under pressure from investors to exit loss-making Uninor.

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RATING RATIONALE

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