Telecom firms may report flat revenues in Q4

Telecom firms may report a marginal increase in revenues in the fourth quarter of the last fiscal due to lacklustre growth in revenue per minute (RPM), according to analysts.

The companies had reported a slight improvement in RPM and average revenues per user (Arpu) in the third quarter of the last fiscal due to hike in 2G tariffs and 3G raking in some profits.

However,  in the fourth quarter (January-March 2012),  higher operational expenditure, interest costs and the waning effect of tariff hikes may cut margins by 50-80 basis points, according to a telecom preview by Angel Broking.

The broking firm sees RPMs increasing just 1-2% and revenues rising 3-4% in Q4.

Overall, the industry is looking at a 3-6% topline growth, led by flat RPMs and wireless margins.

Sunil Tirumalai, analyst with Credit Suisse, said in report this week that RPMs are expected to be flat, owing to intense competition towards the end of December 2011 and regulator uncertainty. Subscriber acquisition costs could go up as firms vie to lure users switching from operators whose licences have been cancelled. This would result in flattish wireless margins, quarter on quarter (q-o-q).

Despite facing an erosion in voice revenue post 2G tariff hikes, incumbent operators have been pushing for even further tariff increases, claiming this as the only way to maintain margins.

Chief among these is Bharti Airtel, which has been seeing a steady drop in profit margins for three straight quarters. It is using this as a strategy to protect revenues. 

Bharti Airtel, which is facing higher operational expenditure at its Africa operations as well as local issues in Nigeria, now has another concern. Bharti had lent Rs1,300 crore to its Sri Lankan subsidiary, which has an additional local currency debt of Rs390 crore (as per FY11 annual report). As per the Credit Suisse report, the 17% fall in Lankan rupee versus INR could lead to an Rs210 crore (non-cash) pre-tax loss booked in consolidated P&L, along with a gain of Rs65 crore booked in reserves.

However, Bharti Airtel is expected to benefit the most from the recent 2G licence cancellations and add maximum number of subscribers through mobile number portability.  In a report, Kotak Institutional Equities said Bharti is expected to report a modest 1.3% q-o-q growth in consolidated revenues to Rs18,720 crore and a 4.5% growth in consolidated operating profit at Rs6,230 crore.

Rohit Chordia and Shyam M, analysts with Kotak, said,  “Bharti’s recent pricing aggression in select markets is likely to have a bearing on RPM trajectory, though we do not expect any material decline in RPM q-o-q.”

Idea Cellular is expected to continue with its upward growth trend, despite its 2G licences being cancelled.

As per industry estimates, Idea Cellular is expected to lead volume growth, with a 5% q-o-q increase in consolidated revenues at Rs5,290 crore. Its operating profit is also expected to rise by 4% q-o-q, at Rs1,400 crore.

“Idea Cellular is expected to report a 5.7% increase in wireless minutes growth, with modest RPM decline of 0.3% q-o-q. Net profit is expected to turn positive at Rs236 crore, showing a growth of 18% q-o-q and a decline of 14% y-o-y, with a forex gain of Rs10 crore, versus a loss of Rs31.1 crore in the previous quarter,” Kotak analyst said.

While 3G showed marginal profitability in Q3, especially for Reliance Communications, industry experts believe in Q4 there has been no acceleration of 3G adoption, even as 2G data demand (Edge, GPRS) is growing.

While Bharti Airtel and Idea Cellular are expected to drive revenues for the telecom sector in Q4, RCom is likely to report subdued results, owing to continuing debt pressures.