New Delhi: India’s listed cellphone service firms are expected to post strong revenues on the back of robust subscriber additions in the quarter gone by, the third in the financial year here, but the growth in net profits will lag expansion of sales due to a rise in costs and foreign exchange-related losses, a Mint poll of analysts shows.
Six brokerage firms surveyed by Mint, including Emkay Global Financial Services Ltd, Motilal Oswal Financial Services Ltd, Angel Broking Ltd, Prabhudas Lilladher Pvt. Ltd, and local units of Citigroup Global Markets Inc. and Macquarie Research, agree strong subscriber growth of 10-12% over the preceding (September) quarter coupled with better geographic coverage and low tariffs will help boost revenues.
Also See Mixed Bag (Graphic)
This, in turn, has moderated falling monthly average revenue per user, or Arpu, for telecom firms, or telcos, with a seasonal revival in the third quarter that coincides with the festive season around harvests and Diwali.
Bharti Airtel Ltd, market leader by subscriber numbers, was the top pick of all the analysts. This was reflected in the fall in the value of telco stocks: shares of Bharti Airtel lost just 8.9% in the quarter, while those of second-ranked Reliance Communications Ltd, or RCom, lost 31.9% and Idea Cellular Ltd shrank at least 30%, points out Angel Broking’s telecom and tech analyst Harit Shah in a 3 January report. The Bombay Stock Exchange’s benchmark index, the Sensex, fell 24.9% in the quarter.
Bharti Airtel, on an average, will post a 38.6% growth in revenue to Rs9,658 crore compared with the year-ago quarter and around 7% over the preceding quarter. The firm is expected to post a net profit of Rs2,171.6 crore showing a growth of around 26% year-on-year, according to the average of the six firms surveyed.
For Idea Cellular, the analyst estimates averaged a 44.5% growth in revenue over the third quarter of fiscal 2008 and an 8.6% over the September quarter to Rs5,978 crore. The Aditya Birla-promoted phone firm is expected to post a drop in net profit by 23.2% over the year-ago quarter to Rs182.07 crore. This came about primarily because Spice Communications Ltd, bought by Idea Cellular in June, had reported extraordinary income of Rs439 crore by sale of tower assets in December quarter of 2007. Analysts are including the Spice business in Idea Cellular’s revenue for fiscal 2008 for comparison purposes.
RCom will grow revenue to Rs2,558 crore, equivalent to a 23% expansion from a year before, but will likely post a marginal rise in net profit of 0.3% to Rs1,420 crore, which will be 7% less than the September quarter profits.
Bharti Airtel and Idea Cellular are expected to declare their quarterly results on 22 January, while RCom has not yet announced the date.
Bharti Airtel’s third quarter revenue last fiscal stood at Rs6,963.9 crore and net profit at Rs1,722.4 crore. RCom posted net profit of Rs1,372.9 crore on sales of Rs4,874.2 crore in the quarter ending December 2007. Idea posted total sales of Rs1,710.3 crore and net profit of Rs237.19 crore for that quarter. Citigroup telecom analyst Rahul Singh said the telcos would post a marginal rise of 1% over September quarter after the seasonal dip in second quarter. “RCom, which had seen a structural decline in MoUs (minutes of use), will likely witness flat MoUs as ‘free minutes’ seem to have been removed,” report said.
Nishna Biyani, sector analyst at Prabhudas Lilladher, said telcos have until now been largely unaffected by the slowdown in the economy and they were helped by expanding geographic coverage and lower tariffs in the quarter gone by.
Still, Angel Broking’s telecom and tech analyst Harit Shah predicted Bharti Airtel would record a 1.01 percentage point decline in operating margins during the December quarter over the same quarter of fiscal 2008. RCom will witness a 2.99 percentage contraction. For Idea, the Ebitda (earnings before interest, tax, depreciation and amortization, a measure of operations efficiency) margins will likely see a massive 7.59 percentage point fall primarily due to the company’s roll-out in newer circles. Idea rolled out networks in Mumbai in August and in Bihar in October.
Shah’s quarterly preview added a decline in tariffs and revenue per minute is also expected to impact the margins.