The telecom industry was among those that disappointed investors in the March quarter.
Growth in both revenue and profit declined, largely because of a higher-than-expected drop in realizations, but also because of lower volume growth.
The big surprise in the results was the sharp deceleration in growth in the data segment. In the case of Idea Cellular Ltd, data revenue grew 45% year-on-year last quarter, a sharp drop from the over 80% growth just two quarters ago. Price realizations in the segment fell by as high as 17% year-on-year. For Bharti Airtel Ltd, data realizations fell 13.1% last quarter, much higher than the 5.6% drop reported in the September quarter.
Idea Cellular’s management said in a note to investors, “(there is) intense pressure on the mobile data realized rate, as wireless broadband consumer demand growth is slower than increased supply from operators launching/expanding 3G/4G footprints.” It’s quite disheartening, from an investors’ perspective, that this is happening even ahead of Reliance Jio Infocomm Ltd’s launch. Supply will increase manifold when Jio launches its services commercially.
Incumbents such as Idea and Bharti have spent vast amounts of money in purchasing spectrum, and have stepped up capital expenditure to capitalize on the data opportunity. The December quarter results suggest that data is proving to be a drag rather than a money-spinner. Analysts at Kotak Institutional Equities wrote in a note to clients, “We are slightly concerned about the data volume trajectory, especially in the context of accelerated 3G/4G network rollouts by the operators. We, however, think it is too early to call out a definitive trend here.”
Investors are taking a very grim view of the future. Idea Cellular’s shares have corrected by nearly one-fourth so far this year, and while Bharti’s shares have been fairly resilient, returns for investors remain abysmal. Its shares have fallen 27% from the highs seen in July last year.