Telecom India Update on Uninor operations and financials : Kotak Sec

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Telecom
India
Update on Uninor operations and financials. Uninor has reported revenues of Rs1.6
bn (+115% qoq) for the Sep 2010 quarter. We highlight the absolute incremental
revenue addition of Rs860 mn (in a weak seasonal quarter, when Idea had zero
absolute rev. growth) is worth noting. While a single-quarter result of a new operator is
at best a weak indicator of underlying industry trends, indicator it is, all the same. We
find Uninor employing some smart, aggressive pricing/trade strategies in the market.

Watch out for Uninor; has all the signs of a serious challenger
A serious late entrant in a competitive sector close to becoming ex-growth can look at three
possible strategies – (1) grow organically through market share gains and build a business case
brick-by-brick, (2) acquire to gain scale, and (3) get acquired. While Uninor could possibly look at
Strategy 2 if an opportunity presents itself, its competitive actions in the market suggest a pursuit
of Strategy 1 and explore 3 if an offer comes along.

Uninor is carving a place for itself in the market through a combination of smart pricing and
aggressive trade channel commissions. More importantly, having understood the challenge it faced
in the initial few months (quick subs churn post initial launch offer uptake), the company has
taken steps to address the challenge – clear signs of a smart operator. Among these steps include
– (1) the ‘dynamic pricing’ plan (varying discounts on base rate depending on location and/or time
of the day), which forces dual-SIM subscribers to keep the Uninor SIM on; also full talk-time plans
and discounted data plans, and (2) aggressive, usage/vintage-linked trade commission schedules. It
is early days, but the company’s Sep 2010 earnings report, recent net adds trends and our channel
checks suggest that Uninor is doing particularly well in the market.


Uninor’s Sep 2010 quarter – good progress on all fronts
�� Uninor reported a strong quarter with revenues of Rs1.6 bn (+115% qoq); EBITDA loss was flat
at Rs8.4 bn and cumulative EBITDA loss stands at Rs32 bn. Incremental revenues of Rs860 mn
are impressive when viewed in the context of Idea reporting flat revenues qoq. Uninor has
reduced its EBITDA loss guidance from Rs35-39 bn to Rs35 bn for CY2010 – due to calibrated
expansion and better-than-expected performance in the recent quarter.
�� Capex for the quarter was low at Rs1.5 bn, again impacted by equipment import security
clearance issues. No new circle launches were done in this quarter. Uninor continues to operate
in 13 circles as of now. The capex guidance for the full year has been reduced from Rs15-19 bn
to Rs12-15 bn – the company attributed this to deferral of capex in a few. Cumulative capex
stands at Rs39.2 bn. The company has reiterated its peak funding requirement guidance of
Rs155 bn – this implies a cash burn (capex and EBITDA loss) of Rs65-75 bn over CY2011-13E.
�� The company added 2.6 bn minutes this quarter, per our computation (same as added by
Idea) – total minutes carried increased to 4.5 bn. ARPU increased to Rs91and MOU went up to
254 (up from Rs83 and 209 in Jun quarter, respectively). Uninor added 4 mn ‘active’ subscribers
(as per company reporting standards); net adds reported to TRAI were 5.2 mn for the quarter,
and represented a 10% net adds market share.
�� The company indicated that it would be focusing its capex on circles where it is performing well
while taking a calibrated approach in the not-so-well-performing circles by changing its
strategies and putting the right people in place.