>TELECOM SECTOR (RELIGARE)

GSM subscribers cross 300mn mark

GSM operators recorded net additions of 8.3mn subscribers in May (excluding Reliance Communications), as against 8.96mn in April – a MoM dip of 7.4%. The decline in May follows a 20.3% MoM drop in April. Lower additions in both months were primarily due to BSNL whose new subscriber tally has fallen from 2.9mn in March to 0.45mn in May. Seasonally as well, the first half of the financial year is a slow period. In the last four years, ~42% of new subscribers
were added in the first half of the fiscal. We expect a repeat of this trend in FY10 with several new network launches in the second half.

■ Bharti’s net additions flat at 2.8mn: Bharti Airtel’s net additions at 2.8mn were consistent with the previous month while remaining at the same level for close to a year now. In a highly competitive market, we see Bharti’s ability to maintain a run-rate of 2.8mn additions as an encouraging sign and indicative of the company’s strength and leadership position.

■ Vodafone’s tally down 8.4% MoM: As in April, Vodafone witnessed a drop in additions for May. This comes after a consistent rise in subscriber additions till March following the extension of network coverage across India (seven new circle launches between August and December). May net additions at 2.54mn were down by 8.4% MoM.

■ Idea’s net adds up 13.3%: Idea Cellular’s net additions at 1.3mn subscribers in May (including Spice) were above its 1.15mn tally for April.

■ BSNL witnesses 55.9% plunge: BSNL’s subscriber additions at 0.45mn were 56% lower than the company’s April figure of 1.03mn and far short of the March figure of 2.9mn. However, as we have noted in the past, this is a common phenomenon in the BSNL subscriber trajectory owing to the year-end push in March to meet growth targets. We also believe BSNL is facing increasing pressure on rural subscriber retention and thus witnessing a higher churn due to the increasing penetration of market leaders in rural areas.

■ Aircel net adds flat at 1.1mn: Aircel’s net additions were flat MoM at 1.1mn with 30% of the new subscribers coming from its leadership market in Tamil Nadu. Aircel recently raised US$ 500mn in ECBs in March ’09.

■ Maintain Neutral sector outlook: In Q4FY09 all the major telecom players fared well with the exception of Bharti, whose revenue growth was below our expectations, and Rcom which witnessed a downturn in its wireless business. Further, operators have managed tariffs well by not responding to the reduction in mobile termination charges. However, increased competition over coming months would raise pressure on tariffs. We thus maintain our Neutral outlook on the sector.

To see full report: TELECOM SECTOR

>TECH MAHINDRA (CITI)

Takeaways from India Investor Conference, June 24-26

■ Takeaways from Mumbai — Tech Mahindra presented at our India Investor Conference on June 25. Below are key takeaways from management.

■ BT Business — On BT business, the uncertainty continues. Tech Mahindra's focus is on maintaining market share. Project Andes should start in Q1FY10.

■ Non-BT business — Management is more optimistic here as it is seeing some good signs. Clients are awarding new projects – these are small as of now, but even small projects were not happening previously.

■ Future outlook — (1) Plans to span the different horizontals (Applications, Security, Network Services, VAS, IMS and BPO) of the telecom vertical. (2) Focus is on account mining. Apart from BT, the focus on other accounts is to maintain or grow market share.

■ Initiatives at Satyam — The priorities for management are: (1) Customer retention – Management is meeting everyone to assure them of the long term viability of the business. (2) Cost rationalization – Initiatives like virtual pool creation, rationalizing costs on infrastructure, etc. A lot of customers have responded well.

■ Open offer issue — Management does not plan to hike the open offer price. If there is zero response then the TechM stake will go up to ~43%. The proposed QIP is to primarily pay off debt on the books (~Rs22b).

To see full report: TECH MAHINDRA

>RETAIL SECTOR (ICICI SECURITIES)

Driven by volume growth

‘Retail Counter’ is a quarterly update, in which we analyse domestic sales trend of FMCG companies based on ACNielsen’s retail audit data. ACNielsen’s FMCG retail-sales audit figures for April-May ’09 indicate 16.2% YoY growth, lower than 19% YoY growth in FY09. We believe this is due to sales growth being driven by volume growth on account of lower inflation, which led to fall in prices of many products. The sector witnessed robust volume growth as only three of the top-10 categories saw lower growth over April-May ’09 vis-à-vis FY09. However, only six of the top-10 FMCG companies grew >10% YoY. Hindustan Unilever’s (HUL) sales growth at 9.6% indicates reversal of the strong, double-digit topline growth in the past six quarters. Notably, this lower value growth is mainly due to volume dip in categories such as toilet soaps, washing powder and detergent cakes. Market share fall continued in key categories such as toilet soaps, shampoos, detergent cakes, toothpaste and skin creams. Nestlé India sustained its spectacular performance, with 20% sales growth.

■ FMCG sales growth slackens with fall in inflation. FMCG retail sales grew 16.2% YoY over April-May ’09, lower than the 19% YoY growth achieved in FY09. We believe this is on account of sales growth being driven by volume growth on account of lower inflation, which led to fall in prices of many products. The sector saw robust volume growth as only three of the top-ten categories witnessed lower growth over April-May ’09 vis-à-vis FY09. Robust volume growth in large categories indicates marked resilience in consumer spending on FMCG.

■ Six of ten FMCG companies see over 10% sales growth. Only six of the top-ten FMCG companies grew over 10% YoY in April-May ’09. Britannia Industries, Dabur, Colgate-Palmolive and HUL registered less than 10% growth. However, with ACNielsen shifting to a new, larger data panel, we perceive some anomalies in the data and believe the lower growth number may not be unreservedly accurate. Nestlé India maintained the sales growth momentum, rising 20%. On the back of sharp price increases, sales in Tata Tea grew a strong 28.3%.

■ HUL – Even new ACNielsen data panel indicates sharp volume & market-share dip in key categories. Sales growth at 9.6% indicates reversal of the consistent,, strong double-digit topline growth in the past six quarters. Notably, this lower value growth is mainly due to volume decline in key categories – Fall of 10.5% in Toilet Soaps, 5.7% in Washing Powder & 19.4% in Detergent Cakes. HUL lost significant market share in Toilets Soaps, Toothpaste, Skin Care, Detergent Cakes and Shampoos.

To see full report: RETAIL SECTOR

>SOUTHWEST MONSOON (EMKAY)

Advancement continues to be weaker

The advancement of the Southwest monsoon continued on weaker trend during the week ended June 24, 2009 as weighted average rainfall during the week stood at 54% below normal same as that in the preceding week. The number of divisions with deficient/scanty rainfall continued to stand at 28 for the week ended June 24, 2009. The key takeaways of our analysis upto June 24, 2009 are as under:

■ The weighted average rainfall across the country continued to remain way below 10-year average as it stood at 54% below normal for week ended June 24, 2009. n Number of divisions receiving deficient/scanty rainfall stood at 28 during the week.

■ In the rain dependent areas the weighted average rainfall stood at 60.6% below normal.

■ The total rainfall till date is now just about 6.5% of the normal (see table IV) rainfall for the full season compared with 19% for the corresponding period last year.

■ The precipitation graph for next one week is indicating slight advancement to northern areas like Uttar Pradesh, Bihar, Jharkhand, and towards north eastern states. Advancement is also likely in Madhya Pradesh, Marathwada and Vidarbha. States like Rajasthan, Gujarat, Punjab and Haryana may continue to face dry spells.

To see full report: SOUTHWEST MONSOON