Mumbai: The top two listed telecoms firms, Bharti Airtel Ltd. and Reliance Communications , are set to report their quarterly profit have doubled in the world’s fastest-growing mobile market.
More than 6 million people sign up for mobile phones in India each month, and analysts expect user numbers, which rose by two-thirds to almost 177 million in the year ended June, to reach 500 million in five years.
But delay in availability of additional spectrum could hurt profitability of GSM operators like Bharti, who are currently facing a spectrum crunch, analysts said.
“With limited spectrum, operators will have to spend more on networks in high-density circles, which would lead to erosion in profit. Otherwise the subscriber growth is sound,” said Naveen Kulkarni, a sector analyst with Religare Securities.
“So the challenge is primarily from the regulatory body’s ability to free up spectrum.”
Bharti, which added 5.6 million mobile phone customers in the June quarter to lift its total to 42.7 million, is forecast to report on a net profit of Rs14.76 billion ($365 million) for the quarter, up from 7.55 billion a year earlier.
Reliance Communications, which had more than 32 million mobile users at end-June, was expected to more than double its quarterly net profit to Rs11.11 billion, it showed.
Morgan Stanley said in a report it expected the sector to add more than 7 million subscribers every month for the rest of 2007.
Deutsche Bank estimates earnings growth to average more than 40% annually for both Bharti Airtel and Reliance Communications over three years, and the sector’s revenue to grow at annual rate of 38% from $13 billion in March 2007.
That has attracted foreign interest -- Vodafone paid $11 billion for a controlling stake in Hutchison Essar, the third-ranked mobile operator, earlier this year -- and offers the companies potential windfalls from their infrastructure units.
Last week, Reliance Communications said its mobile phone tower unit was valued at $6.75 billion after it sold a 5% stake. Analysts immediately marked up valuations of Bharti’s tower unit, with some saying it was worth $10 billion or more.
Average revenue per user (ARPU) for Bharti, 30.8% owned by SingTel, and Reliance Communications is estimated to have fallen 2.5-5% in the June quarter from the previous quarter, but analysts said robust user growth would cushion the drop.
Further, moves to share infrastructure will help cut costs and expand coverage to rural areas, and the spin-offs of the tower businesses should drive stock prices, analysts said.
Indian wireless telecom stocks are trading at 20 times average earnings estimates for 2008/09, largely in line with their Chinese peers, Morgan Stanley said.
Shares in Bharti, India’s third-most valuable company at $43.5 billion, rose 9.5 % in the June quarter, underperforming a 12.1% rise in the benchmark index. Shares in Reliance Communications rose 23.1% in the quarter.
India has 12 telecoms firms which offer fixed-line and mobile services on GSM and CDMA platforms. Both Bharti Airtel and Reliance Communications provide services in all the 23 zones or circles that make up India’s telecom market.