New Delhi: Despite record customer additions at mobile phone service firms in the last quarter, analysts are revising down their earnings forecasts for fiscal 2009, some made as late as in January, as new entrants garner customers with low tariffs and phone usage plans that dent profits.
Increased competition from the likes of Aircel Ltd and Sistema Shyam Teleservices Ltd, as also Reliance Communications Ltd, or RCom, which started rolling out GSM services in January, is putting pressure on the profit margins of India’s listed phone service firms such as Bharti Airtel Ltd, Idea Cellular Ltd and even RCom, a survey of forecasts made by six brokerages shows.
Also See Squeeze on Margins (Graphic)
RCom launched its GSM (short for global system for mobile communications) service with a lifetime prepaid tariff as low as Rs49. Lifetime prepaid tariffs are what phone firms charge for phone cards with a validity of up to 20 years with customers having to pay additional charges for call minutes used. The RCom offer came with Rs450 worth of call minutes free.
Idea Cellular is to announce its financial results on Thursday, with Bharti Airtel and RCom scheduled for 29 April and 30 April, respectively.
The six brokerage firms surveyed by Mint included Motilal Oswal Securities Ltd, KR Choksey Shares and Securities Pvt. Ltd, Prabhudas Lilladher Pvt. Ltd, Angel Broking Ltd, JP Morgan India Pvt. Ltd and a local unit of Citigroup Global Markets Inc.
Analysts at two of these firms—Motilal Oswal and Prabhudas Lilladher—have revised net profit estimates for Bharti Airtel, Idea Cellular and RCom. Motilal Oswal’s Shobhit Khare, for instance, revised down the fiscal 2009 net profit forecast for Bharti Airtel to Rs8,490 crore on 27 March, from the Rs8,680 crore estimated in early January. For Idea Cellular, he reduced it to Rs820 crore from Rs920 crore.
At Prabhudas Lilladher, analyst Nishna Biyani reduced RCom’s net profit estimate to Rs5,400 crore from an earlier Rs5,960 crore. Steep discounts and increased minutes of usage bundled together in calling plans will likely see a sharp drop in revenue per minute for the telcos from the third quarter, in which Bharti Airtel recorded 65 paise a minute of revenue and smaller rival Idea Cellular 64 paise.
Such small drops get amplified by high volumes in India, the world’s second-ranked phone services market by customers after China, and the world’s fastest growing.
Mobile phone service firms in India added some 135 million customers in fiscal 2009, taking the number of subscribers to nearly 392 million. Around 44 million of these additions, according to the country’s telecom regulator, were in the March quarter, the fourth and final of the just-ended fiscal year.
Still, some cost-cutting efforts by the phone operators could buffer the impact of lower revenue per user. “Ebitda margins should be largely stable (quarter-on-quarter) as falling fuel prices and cost-cutting measures offset tariff decline in the short term,” Manoj Singla, an analyst at JPMorgan India Pvt. Ltd, wrote in a 7 April report.
Ebitda, or earnings before interest, tax, depreciation and amortization, is a measure of operational profitability. Phone firms use diesel to power electricity generators in phone towers.
On an average, the analyst survey showed Bharti Airtel posting revenue of Rs37,332.75 crore in fiscal 2009, potentially recording growth of 38.14% over the previous year. The firm’s net profit for the year is expected to expand 27% to Rs8,508 crore.
RCom may post a net profit of Rs6,202.7 crore, a rise of 12.58% from fiscal 2008, on sales of Rs22,912 crore, representing an increase of 20.15%, the survey shows.
Idea Cellular is expected to post net profit of Rs854.23 crore, or 18% less compared with fiscal 2008, even though it will expand revenue by nearly half to Rs10,156 crore. The jump in revenue is largely due to the acquisition of Spice Telecom Ltd in June 2008. Profit is expected to be lower due to spending on networks as Idea Cellular expands its coverage.
Bharti Airtel remains the top pick of analysts despite the firm losing as much as 12.5% of its market value in the fourth quarter of fiscal 2009. RCom shed 23% and Idea Cellular 4.7%.
In the coming quarters, as new telecom aspirants such as Unitech Wireless Ltd or Swan Telecom Ltd roll out networks and services, the pressure on margins is likely to continue, the brokerage firms said. In his report, JPMorgan’s Singla predicted a further reduction in tariffs over the next six-nine months.
Graphics by Sandeep Bhatnagar / Mint