Bharti Airtel, Idea Cellular may see revenues plunge in September quarter

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KOLKATA: Bharti Airtel and Idea Cellular may report a sharp sequential fall in wireless revenue in the second quarter, stung by the combined effect of higher indirect tax pay-outs by way of the 18% goods & service tax, seasonal weakness and continued pricing erosion, analysts said.

Number 3 carrier Idea will show a more pronounced negative operational impact, Bank of America-Merrill Lynch said, predicting a 7.5% on-quarter fall in cellular revenue in the July-September period, while pegging market leader Bharti Airtel’s sequential slide on this score at 5%.

The US brokerage attributes the impact on Idea to its “higher proportion” of rural subscribers. It also said Idea may report 3 million data customer losses due to its weaker 4G footprint compared to Airtel and newcomer Reliance Jio Infocomm. Bank of America-Merrill Lynch expects revenue at Bharti and Idea “to be impacted by normal seasonality and the implementation of the GST”.

Continued pricing pressure had compounded matters, brokerage Kotak Institutional Equities said, and “the modest price revision by Reliance Jio Infocomm had not had any positive impact on the net ARPU (average revenue per user)” for the two listed carriers.

Airtel and Idea, the brokerage said, have “generally maintained pricing of bundles in a bid to reduce the premium they were charging versus Jio,” which is a key reason behind the absence of any positive movement in net ARPU.

Bharti Airtel, Idea Cellular may see revenues plunge in September quarterKotak expects Airtel’s monthly ARPU to decline 5.8% on-quarter to Rs 146 and predicts Idea’s to dip over 5.6% sequentially to Rs 133. “Expectations that ARPU uptrading would mitigate some pressures have been belied with the market still in a net ARPU downtrading phase,” Kotak said in a note. “A material negative externality is the 18% GST versus 15% service tax earlier, Kotak said. According to the brokerage, “wireless operators are absorbing most of the impact of this indirect tax increase.”

Bharti Airtel is estimated to report a 79% on-year fall in net profit in the September quarter from Rs 1,461 crore last year, according to a poll of five analysts. Idea is expected to report a loss for the fourth successive quarter — of Rs 1,166 crore — from a consolidated net profit of `90 crore last year. Airtel’s consolidated revenue is estimated to fall almost 12% from Rs 24,652 crore a year earlier, while Idea’s revenue may decline 18.5% from Rs 9,300 crore.

Swiss brokerage UBS expects the grim revenue outlook to continue following the 57% reduction in IUC from October 1.

“With IUC lowered from 14 paise per minute to 6 paise, we believe the sector revenues will likely remain subdued in the fiscal third quarter as well,” UBS said in a note seen by ET.

IUC is paid by a telco originating acall to the mobile network where it terminates.

Airtel, Vodafone India and Idea will be the biggest revenue losers as they have most customers and calls terminate on their networks. Jio is reckoned to be the biggest gainer, which is likely to translate into lower prices, triggering another price war.

ICICI Securities backed the view, saying benefits from the “delay in JioPhone delivery to the 30% rise in Jio’s tariff ” are likely to be offset by the scheduled cut in IUC.

Kotak expects Airtel’s operating profit for its India wireless business to remain weak and fall 10% quarter-on-quarter to almost Rs 4,000 crore. In Idea’s case, it forecasts a sharper 28% sequential fall to Rs 1,350 crore.

UBS estimates Airtel’s consolidated operating profit to dip 3% sequentially compared with Idea’s 15% decline on-quarter, due to the market leader’s continuing cost initiatives in India and Africa and improved margins in Africa.

IIFL Institutional Equities expects Airtel to make “substantial and permanent revenue market share gains in the interim with the Vodafone-Idea merger likely to take time,” coupled with the possibility of “integration challenges thereafter”