These are hard days for Indian telecom. As if a seasonally weak September quarter is not enough, the pain inflicted by a falling rupee is likely to make a big dent in their earnings numbers.
“The forex loss to telcos on account of a steep rupee depreciation in the quarter will be key to watch out for. This especially holds for the likes of Bharti Airtel and Reliance Communications which have high dollar debt on their balance sheet.
For Airtel, which has natural hedges and will benefit from its more resilient Africa cross-currency gains, the forex loss may be more in terms of translation setback. However, RCom may face actual forex loss as its overseas revenues may be insufficient to neutralise the currency loss,” said Ankita Somani of Angel Broking.
Rohit Chordia and Shyam M of Kotak Institutional Equities are on the same page.
In a report on Monday, they added, “For Bharti, we expect lower forex losses qoq at Rs 325 crore (versus Rs 535 crore in April-June). Our profit after tax (PAT) estimate stands at Rs 850 crore, assuming 48% for the utterly unpredictable effective tax rate for Bharti (consolidated).”
The Kotak analysts also expect a softer second quarter for the Indian wireless operators on account of weak voice volumes and a modest uptick in revenue per minute (RPM) in comparison to the three months to June.
The weakness is despite telecom operators pulling back their earlier freebies and higher subscriber additions for the first time in two quarters following a clean-up of non-active subscribers.
Explaining the phenomenon, Somani said, “The second quarter is one that typically witnesses higher call drop rates, which negatively impacts volumes.”
There may have been a marginal addition to subscriber numbers, but tariffs have not moved up in equal measure. Besides, rural subscriber additions have seen a drop in the quarter, according to the Kotak duo.
“We thus build in 2.5% qoq voice traffic decline for Bharti and 3.5% for Idea while we build in 1.8-2% qoq voice RPM uptick for Bharti and Idea versus 4-6% in Q1 FY14. Furthermore, with negative operating leverage on account of voice volume weakness, we build in 20 bps qoq earnings before interest, taxes, depreciation, and amortisation (Ebitda) margin decline for both Idea as well as Bharti India wireless segment,” they said.
They expect SMS and value added service (VAS) volumes to come under strain due to stricter Trai VAS activation and SMS termination norms, which would negatively impact quarterly results.
But not all is lost.
A steady growth in mobile data and 3G usage will provide some cheer and boost carriers’ total revenues.
On the whole, Bharti Airtel is once again expected to lead the telecom pack in terms of revenues. According to the Kotak report, Bharti Airtel may report a consolidated revenue growth of 3% qoq and 11% yoy at Rs20,900 crore, with consolidated Ebitda estimate of Rs6,660 crore (+1.8% qoq, +17% yoy). For Idea Cellular, consolidated revenues are expected to be around Rs6,410 crore (-2% qoq, +21% yoy), with Ebitda of Rs2,030 crore (-2.5% qoq, +42.4% yoy), and PAT of Rs500 crore (+8% qoq, +108% yoy). This is based on assumptions of a 3.5% qoq traffic decline, 1.8% qoq voice RPM increase, and 1.5% overall RPM increase, data revenue growth of 16% qoq, and wireless OPM decline of 20 bps qoq.
Finally, RCom is expected to report consolidated revenues of around Rs5,830 crore (+7.7% qoq, +12% yoy), including Rs400 crore from the Reliance Jio Infocomm Limited (RJIL) fibre deal.
Finally, Trai’s move to lower the auction reserve price for 1800 Mhz and 900 Mhz spectrum is being viewed as a positive for certain companies.