GSM operators put up a strong show; Idea takes centrestage

GSM operators put up a strong show; Idea takes centrestage

Multi-SIM (subscriber identification module) ownership and tariff cuts continue to drive net addition in the global system for mobile (GSM) space. Overall GSM net addition, as reported by the Cellular Operators Association of India (COAI), increased 7% month-on-month (m-o-m) to an estimated 11.5 million subscribers in November from 10.8 million in October.

Idea Cellular Ltd reported a higher net addition of 34% subscribers m-o-m, while Bharti Airtel Ltd recorded stable net addition. Monthly net addition of VodafoneEssar Ltd and Aircel Ltd came off from their record highs in October.

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Idea steals a march, thanks to better positioning. Idea reported its highest ever monthly net addition at 2.55 million, which is just 9% below the net addition reported by GSM leaders Bharti and Vodafone, against 1.90 million in October. The previous high for the company was 2 million in January. Bulk of the m-o-m increase in net addition came from Idea’s established circles (Uttar Pradesh west, Andhra Pradesh, Madhya Pradesh and Maharashtra) and from the four new circles, where Idea started operations in October. Idea is now present in all circles, except North-East. We highlight that overall subscriber additions have picked up disproportionately in A and B category circles, where Idea is strongly positioned. In October, A and B circles accounted for 72% of total industry subscribers, but 88% of Idea subscribers.

Bharti’s net additions increased by 3.6% m-o-m in November and attained their previous steady level of 2.8 million, in line with our forecasts. Vodafone’s net addition of subscribers eased to 2.8 million against 3 million in October. Aircel’s numbers dropped 20% m-o-m to 1.6 million from their all-time high level of 2 million. Bharat Sanchar Nigam Ltd net addition continue to be volatile, doubling to 1.2 million against the October level.

We maintain our sell ratings. We expect stock prices to remain range-bound given a fluid competitive environment, and overhang from potential mobile number portability implementation and 3G auctions (likely in the first quarter of CY10). Our suggested entry point for Bharti is Rs275 (13x our estimated FY11 earnings per share) from a short-term trading perspective.

Graphics by Ahmed Raza Khan/Mint