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Still Neutral on NII Holdings

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NII Holdings, Inc., has recently declared lackluster third-quarter 2012 results where both its top and bottom lines fell short of the Zacks Consensus Estimates. As a result, the company also slashed its OIBDA guidance for full fiscal 2012.

NII Holdings reported weak subscriber addition during the third quarter of fiscal 2012 coupled with lower Average Revenue per Subscriber (ARPU) and higher churn rate. Delay in the launch of 3G services and reduction of customer retention cost have contributed to the dismal financial result.

NII Holdings’ leverage ratio has also increased from 0.50 in 2010 to 0.61 in 2011, indicating its higher dependency on debt financing. We believe that the company will issue more such senior notes in the upcoming quarters to fund their newly launched 3G networks across all its markets as well as to take part in spectrum auction, which in turn, will further increase its leverage ratio. Lack of funds may be a constraint for the company to take part in future spectrum auction, which will be held in Argentina and other Latin American countries in the near future.

NII Holdings continues to face stiff competition from America Movil (AMX - Free Report) , which has already completed rolling out 3G services in Mexico and the major cities of Brazil. Moreover, the latter started offering its first 4G LTE service in Mexico, thereby causing more problems for the company going forward.

Despite such headwinds, the company is continuously maintaining a stable subscriber growth. It has already received strong response from its 3G service launch in Peru and Chile. Moreover, to boost its ARPU growth as well as offer value added services to its subscribers, the company added 12 new smartphones supporting 3G technology. We, thus, maintain our long-term Neutral recommendation on NII Holdings, Inc.

Currently, the company has a Zacks #3 Rank, implying a short-term Hold rating on the stock.

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