New Delhi: Despite hefty growth in their customer base, India’s three biggest publicly traded telecom firms are set to post March quarter earnings that will likely continue to be dented by a tariff war and competition from new operators that has caused a steep drop in call rates.
Bharti Airtel Ltd, Reliance Communications Ltd (RCom) and Idea Cellular Ltd will release figures for the January-March quarter later this month.
A Mint poll of five brokerages shows Bharti will post a year-on-year (y-o-y) rise in revenue of 0.3% to Rs9,854 crore and a drop in profit after tax (PAT) of around 4.4% to Rs2,142 crore.
Graphic: Naveen Kumar Saini / Mint
Idea’s revenue is expected to rise by 11.6% to Rs3,249 crore, while RCom is expected to witness a drop in revenue of 11.3% to Rs5,369 crore. Both firms are likely to see their net profit drop by around 35%.
The brokerages polled were the Citi Investment Research and Analysis division of Citigroup Global Markets Inc., Macquarie Research, Motilal Oswal Securities Ltd, Morgan Stanley India Co. Pvt. Ltd and CLSA Asia-Pacific Markets.
In the December quarter—a period traditionally lucrative for telecom firms as it stretches over a festival season —Bharti’s revenue had grown by 1% y-o-y to Rs9,772 crore.
The tariff war started in July when Tata DoCoMo Ltd, hoping to expand its market share, offered customers the option of paying on a per-second rather than a per-minute basis. Other telcos had to follow suit.
This directly hurt their average revenue per user and average revenue per minute (ARPM). As more users began using multiple SIM cards as a result of falling calling costs, the minutes of usage (MoUs), declined. These are the three key indices to measure the performance of telecom firms.
Uninor, a joint venture between realty firm Unitech Ltd and Norway’s Telenor ASA, entered the market in the December quarter, followed by Videocon Telecom Ltd and S Tel Ltd in the next quarter, making the market more competitive.
“Fourth quarter results should be weak as ARPM and MoUs remain under pressure due to (the) roll-out of networks by greenfield (new) operators and increase in multiple SIM usage,” Shubham Majumder, regional head of telecoms research (Asia) at Macquarie Capital Securities, wrote in a report dated 8 April. “The quarter will also see (the) full impact of new launches from the previous quarter.”
However, massive growth in the subscriber base should help the firms do better than the preceding quarter in terms of revenue. India added 19.6 million subscribers in January and 18.7 million in February, taking the total number of cellphone users to 600.69 million, according to the Telecom Regulatory Authority of India.
Profit margins, as the Mint poll showed, are likely to remain under pressure.
“Typically, the fourth quarter has tax adjustments, which coupled with revenues pressures and aggressive expansions mainly for RCom and Idea Cellular, will cause profit drops,” N. Krishnan and Bhavesh Shah of CLSA wrote in a report dated 8 April.
Rahul Singh, an analyst with Citigroup, said in a 16 April report that ARPM will continue to decline as more subscribers shift to per-second billing.
“The sharp tariff decline is likely to drag wireless Ebitda (earnings before interest, taxes, depreciation and amortization) margins down, though overall Ebitda is expected to remain flat... Slight rupee appreciation (4%) will support performance at the PAT level,” Singh said.
In coming months, analysts expect competition to increase as telcos bid for third-generation, or 3G, and broadband wireless access services.
The introduction of mobile number portability, through which customers will be able to retain their numbers even after changing service providers, will make the market tougher still, they said.
On Monday, Bharti shares closed 0.56% up at Rs306.05 each on the Bombay Stock Exchange, RCom ended down 1.3% at Rs166.50 and Idea fell 1.34% to Rs66.45 on a day when the exchange’s benchmark Sensex index closed down 1.08% at 17,400.68 points.