Telecom companies seen bouncing back this fiscal

Mumbai: Incumbent telecom operators such as Bharti Airtel Ltd and Idea Cellular Ltd are expected to post better financial performance over the next few quarters on the back of a merger that is expected to create synergies, savings and the benefit of a low base, brokerages said. However, performance in the March quarter may remain under pressure due to promotional tariffs, cut in international call termination charges, and an increase in service tax.

A Deutsche Bank Markets Research report on India Telecom released in 12 April states that the merged company (Vodafone-Idea Cellular) is expected to make Rs4,000 crore savings on network operating expenses as it rationalizes its tower footprint. The report also estimates that the merged company would save from lower rentals (lesser sites) and reduction in power costs.

“We forecast merge company Ebitda margin to improve to 26% in FY19 (estimated) from a level of 18% in FY18 (estimated),” the report said.

The report states that Bharti Airtel’s consolidated revenue is expected to achieve a three-year compound annual growth rate (FY18-20 estimated) of 9.7%, driven by 11.9% and 3% growth in India and Africa businesses, respectively.

“The expected growth in India business is largely driven by the exit of most weak players from Jio’s entry and Bharti has been at the forefront of buying these assets at distressed valuations. As a result, Bharti is likely to reach a rev-share of 36-37% by FY20E, a gain of 3% during the next two years,” the Deutsche report said.

Deutsche also expects Bharti Airtel’s India Ebitda margin to increase from 37.5% in FY18 (estimated) to 41.1% in FY20 (estimated).

“Key drivers of margins include progressive normalization of Jio’s pricing, consolidation of Uninor’s revenue base and falling trend in spectrum charges (as a % of revenue),” it said, adding the ongoing turnaround in Africa should aid in supporting the Africa margin to stabilize at 33% in FY20 (estimated).

A UBS research report on the Indian telecom sector dated 13 April states that while near-term competitive outlook is expected to be more challenging, the recent pick-up in mobile broadband net adds for incumbents (like Bharti Airtel, Vodafone, Idea Cellular) shows incumbents are shrinking both the 4G network and pricing gaps with Reliance Jio.

However, the research firm expects the January-March 2018 period to be weak for incumbent telecom operators on the back of price cuts implemented by RJio, ARPU (average revenue per user) down trading and reduction in international termination charges.

“In view of the weaker than expected Q4 (January-March 2018) and our assumption of a delayed and more gradual revenue recovery in FY19, we lower our revenue and EBITDA estimates for Bharti by 10-12% and for Idea by 20% and 35%,” it added.

Bharti Airtel Ltd, whose quarterly profit plunged 39% annually to Rs 306 crore during the December 2017 quarter, and Rs 343 crore during September 2017 quarter, has seen its quarterly net profit drop consecutively during all quarters of 2017-18.

Idea Cellular, meanwhile, saw its net losses rise from Rs 815 crore during Q1 FY18, to Rs 1107 crore during Q2 FY18 and to Rs 1,285 crore during Q3 FY18.

Angel Broking’s Mayuresh Joshi told Mint that down trading of ARPU is expected to continue for a few more quarters. Incumbent operators are looking for revenue marker share and subscriber market share and a strong pressure on margins can be expected, Joshi said adding that the churn for Bharti Airtel may not be as significant as the company has been able to keep its hold on its revenue market share.

“Improvement or stability will depend on how the down trading of ARPUs bottom out,” Joshi said adding that he’s hoping to see stability during the second half of year to see some stability. “We will have to wait and watch… Consensus on street is that of a loss for Bharti Airtel.”livemint


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