BackAirtel may buck trend as slowing revenue growth bruises telcos
Airtel may buck trend as slowing revenue growth bruises telcos
PremiumTaking a hit:One factor for slower growth in revenues and profits is the cut in the amount that one cell phone firm charges another for completing a call between networks from 1 April by 10 paise to 2
New Delhi: As the rate of revenue expansion slows in India’s telecom industry with the addition of customers with lower monthly billings every day, two of the country’s three listed private-run mobile phone companies have faced pressures of margin erosion in the June quarter, a survey of six brokerage and securities firms shows.
Bharti Airtel Ltd, India’s top telco by revenues, may be the only one that will continue to clock a healthy expansion (though profit growth will lag sales), while Reliance Communications Ltd (RCom) and Idea Cellular Ltd may report single-digit growth in net profits or even a contraction from the year ago when they report financial results for the April-June period, according to an average of analyst expectations.
The result preview reports covered by Mint for this survey include those by the likes of BNP Paribas SA, Citigroup Global Markets India Pvt. Ltd, India Infoline Ltd, ICICI Securities Ltd, Angel Broking Ltd and Centrum Broking Pvt. Ltd.
The average expectation puts Bharti Airtel, which is in merger talks with Johannesburg-based MTN Group Ltd, posting at least Rs3,580 crore net profit in the quarter gone by on revenue of Rs10,256.30 crore. Earnings expansion at 16.92% lags the nearly 21% expected growth in sales, show the average estimates.
Bharti Airtel reports results on 23 July.
RCom, placed second behind Bharti Airtel by customers, may report a contraction of 17.74% in net profit to Rs1,188.30 crore, though it could expand revenue to Rs6,390.82 crore—an increase of 20.76%—in April-June, the first quarter in the current fiscal year. Calculated by median, RCom’s earnings in the quarter may shrink by at least 21%, while revenue may expand by 21%.
“The expected drop in profits is on account of rising core network expenditure and the rise in fuel prices (used in generators that power base stations)," said Kevin Trindade, senior analyst with Kisan Ratilal Choksey Shares and Securities Pvt. Ltd.
RCom, which launched its GSM services in January, has not announced a date for announcement of results yet.
Idea Cellular, ranked fifth by customers in India, may grow profits just by some 7% despite revenues expanding by nearly 42%. Analysts put this down to capital expenditure over expansion into new circles or telecom licensed areas in India such as Bihar and Tamil Nadu in the quarter. The company is now present in 14 circles with rights to use spectrum or airwaves in all 22 operating areas of India.
By median estimates, the firm’s net profits may grow 3.76% and revenues by 42%.
Idea Cellular, too, has not finalized a date for its results.
In comparison, Bharti Airtel, which added 8.4 million customers in the quarter, taking its mobile phone subscriber base to 102.36 million, has had an all-India GSM network for years and its spending is incremental.
Bharti Airtel had reported revenue and earnings annual growth rates of 26% and 21%, respectively, until the March quarter.
“Subscriber growth would primarily (have been) driven by B and C circles during quarter," analyst with Centrum Broking, Piyush Choudhary wrote in a report dated 6 July, indicating that most of new customers added were those with lower billings than the industry average of some Rs200 a month.
India divides its telecom circles into four categories where metros and A circles represent urban-dominated states with higher per capita incomes while B and C circles are seen as predominantly semi-urban and rural areas.
Another factor for the slower growth in revenues and profits is the impact of the reduction in so-called termination charges to 20 paise a minute from the earlier 30 paise with effect from 1 April. Termination charges refer to the amount one cellphone firm levies on another for completing a call between networks.
The pressure on margins may not ease in the coming quarters, one analyst predicted. “Going ahead, even as we expect robust growth in the Indian mobile subscriber base, given a more challenging business environment, a significant increase in competitive intensity, a further fall in tariffs and Arpus, slowing subscriber growth, margin pressures, and ever-present regulatory risks," analyst with Angel Broking, Harit Shah, wrote in a 3 July report. Arpu is short for average revenue per user, or monthly customer billings.
Still, the increasing minutes of usage per customer could help “steady trends for telecom," Anantha Narayan and Hemant Joshi, analysts at ICICI Securities wrote.
Shares of Bharti Airtel closed Wednesday trades at Rs780 each, an increase of 0.86%, while those of RCom ended 5.12% stronger at Rs261.75 each on the Bombay Stock Exchange, or BSE. The Idea Cellular scrip was up 5.15% at Rs73.35. The Sensex, a benchmark index of BSE, added 2.88%.
shauvik.g@livemint.com
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
