New Delhi: Third quarter earnings could be among the worst posted by India’s three listed phone companies, which are hurting deeply from price competition that’s eroding gains from subscriber additions in the world’s fastest growing wireless market, analysts say.
Bharti Airtel Ltd, Reliance Communications Ltd (RCom) and Idea Cellular Ltd will likely report a profit decline in the three months ended December as the tariff war squeezes their margins, according to analysts at five brokerage firms that track the companies.
“The third quarter is likely to be one of the weakest quarters for the Indian wireless sector,” Shobit Khare, analyst with Motilal Oswal Shares and Securities Ltd, wrote in a report dated 29 December.
Calling customers: Rates have dropped to as low as 1 paisa per 6 seconds as firms seek to attract new customers and retain existing ones. Rajkumar / Mint
“While the industry subscriber growth has scaled new highs with monthly subscriber net additions run rate of more than 15 million, aggressive pricing due to intense competition would drag revenue and margins,” Khare wrote.
HSBC Securities and Capital Markets (India) Pvt. Ltd, Citi Investment Research and Analysis, Nomura Financial Advisory and Securities (India) Pvt. Ltd and Angel Broking Ltd also saw gloomy third-quarter prospects for the listed phone firms.
Phone companies have been cutting call charges to gain subscribers and market share in a country where the number of subscribers crossed 500 million in November, a month in which 17.5 million connections were added.
Call rates have dropped to as low as 1 paisa per six seconds as phone firms seek to attract new customers and retain existing ones in anticipation of more competition and mobile number portability, which will enable subscribers to shift to other operators and keep their old phone numbers.
Average revenue per user (Arpu) as well minutes of usage (MoU) have dropped. The tariff war has also included roaming rates and short messaging service (SMS) rates. Some analysts say things could get worse.
“The full impact of the tariff war will only be seen in the fourth quarter in the annual results, but some amount of the impact will be seen in the third-quarter results that the telcos will announce shortly,” said a Mumbai-based analyst with an international brokerage firm. He didn’t want to be named as he isn’t authorized to speak to the media.
While the quarter was marked by new launches (Uninor, the brand under which the joint venture between Unitech Ltd and Telenor ASA of Norway is offering services) and expansion of telcos into new markets (Tata Teleservices Ltd and Idea Cellular), growth in the subscriber base would lead to marginal growth in revenue, Angel Broking said.
According to data from the Cellular Operators Association of India (COAI), India’s GSM operators (excluding RCom among the listed firms) added 12.5 million subscribers in December, suggesting an accelerating trend. November saw 11.1 million subscriber additions, on top of 10.3 million in October.
And, “given that large part of the tariff cuts came during middle of the quarter, full impact of competitive intensity and tariff pressures will be reflected more in March 2010 earnings”, HSBC Securities analyst Rajiv Sharma wrote in a report dated 13 January.
Nomura analysts Sachin Gupta, Roshan B. Raj and Neeraja Natarajan, in a report dated 11 January, wrote that operating profit for the sector should be flat on a year-on-year and quarter-on-quarter basis in the three months ended December.
Citi analysts Rahul Singh and Gaurav Malhotra expect the phone firms to report 6-12% growth in call traffic during the three months ended December from the previous quarter.
“This is due to a combination of base effect given a seasonally weak second quarter, sharp tariff cut would have helped incumbents gain back some minutes from competition and some inherent elasticity,” they wrote in a report.
Telecom company shares underperformed the Bombay Stock Exchange benchmark, the Sensex, in the third quarter. Bharti Airtel lost almost 22%, RCom fell 44% and Idea Cellular dropped around 23% in the quarter compared with a 2% rise in the Sensex.
On Wednesday, Bharti Airtel rose Rs10.90, or 3.4%, to Rs330.90; Idea Cellular gained Rs0.40, or 0.7%, to Rs58.20; RCom rose Rs0.45, or 0.24%, to Rs186.85. The Sensex was barely changed at 17,474 points.