New Delhi / Mumbai: Strong demand, capacity constraints at the state-owned operator Bharat Sanchar Nigam Ltd and a cheaper dollar are likely to see private sector telecom service firms post impressive results in the first quarter, say analysts. While Bharti Airtel Ltd, the country’s biggest mobile phone operator, may post a 90% year-on-year growth of its profits in the quarter, its second-ranked rival Reliance Communications Ltd could do even better, they add.
Private GSM operators such as Bharti Airtel and Vodafone Essar Ltd (formerly, Hutchison Essar Ltd) have seen their monthly subscriber additions reach the highest ever during the quarter as BSNL’s rate of subscriber addition fell to less than a third of its performance during the preceding quarter due to capacity constraints.
“Bharti has added nearly 5.6 million subscribers this quarter, compared with just 5.15 million during the previous one,” said Gaurav Dua, senior research analyst at online broking portal Sharekhan. This “will result in a strong top-line (revenues) growth,” he added. The New Delhi-headed company had cut the price of its lifetime validity pre-paid cards by half to below Rs500 during the June quarter—further driving growth.
The resulting likely drop in average revenue per user doesn’t seem to bother analysts. “New subscribers tend to be low-revenue subscribers, so the average revenues may go down but again, at the profit level, we are likely to see excellent growth,” Dua said. Bharti Airtel declares results for the June quarter on 26 July.
The average of estimates by five brokerage and research firms—Motilal Oswal Securities, CLSA, ICICI Securities, Pradbhudas Lilladher and Angel Broking—for Bharti’s revenue growth in the quarter is around 53.3% over the year-ago period to about Rs5,912 crore, and the expansion of net profits, at over 90% to Rs1,456 crore. The growth sequentially or over the March quarter will be 9.6% and 7.6%, respectively. The company’s shares closed at Rs923 on the Bombay Stock Exchange (BSE) on Friday.
For Reliance Communications, the growth in revenues, keeping aside exceptional items, may be slower, primarily on account of about five million customers it had struck off its networks at end-March over inability to meet requirements of a government-mandated address verification drive.
Analysts polled by Mint put the year-on-year revenue growth lower at around 30% to Rs4,213 crore, but said benefits coming from its increasing scale of operations and a rising value of the rupee against the US dollar, the currency in which most equipment purchases are made, would more than double profits to nearly Rs1,068 crore. Investors have applauded as the stock rose nearly 23% in the June quarter outpacing a 12.1% increase in BSE’s benchmark Sensex.
“Unlike IT companies which had their revenues and profits eaten out by the 6.5% appreciation in rupee during the quarter, for telecom companies, the impact is going to be either neutral or positive,” said Amitabh Chakraborty, head of equities at New Delhi-based Religare Securities. Like other analysts, Chakraborty says the rupee appreciation will have a beneficial impact on both the expenses on overseas telecom equipment as well as on the interest outgo on foreign loans.
“Reliance Communications is likely to show a higher other income or a drop in interest charges as the company has a substantial overseas debt in the form of foreign currency convertible bonds,” added Chakraborty. In a bid to retain its No.2 position from a fast-growing Vodafone Essar, the company launched its low-cost, subsidized handsets that start at prices as low as Rs777 each. In May and June the company added 2.3 million subscribers to its network.
Reliance Communications reports results on 31 July. Shares of the company closed at Rs583.6 on BSE on Friday. Idea Cellular Ltd, India’s No. 5 wireless operator by subscribers and a firm with just one quarter behind it after its listing, is yet to have many analysts tracking it but investment bank UBS has forecast Rs1,460 crore revenue and Rs130 crore profit for the June quarter. Idea Cellular reports revenues of 24 July. Its shares closed at Rs128.40 on BSE on Friday.