NEW DELHI: Telecom operators Bharti Airtel, Reliance Communications and Idea Cellular are expected to report a fall in profits and a squeeze on margins in the July-September quarter, say analysts.
The quarter is seasonally weak with no major festivals or harvest season. Companies are also expected to face stiff interest charges on borrowings. So far, telecom companies have been capitalising — or accumulating on the balance sheet without providing funds in the cash flow — the cost of debt they raised to buy third-generation radio waves from the government.
With 3G launches impending, some may start debiting factoring the cost of this debt on profit-and-loss accounts from this debt in the September quarter. The monthly average revenue per user — a key indicator of profitability — is also expected to drop between 3% and 5% for the operators, despite a stable pricing environment, analysts said.
The softening of competition will continue to moderate declines in average revenue per minute (ARPM) for the incumbents, Religare said in a note on October 4. “However, Q2 is seasonally soft for traffic growth resulting in modest 2QFY11,” the note prepared by analysts Rumit Dugar, Manoj Singh and Udit Garg said.
An analyst, who asked not to be named, said, “The main aspect to watch out for in the quarter is usage on the network. That’s the only indicator of future consumption remaining after most companies pulled out free usage plans last quarter.”
In August, Reliance Communications had said its minutes of usage fell because some schemes in which it offered free minutes of calling had ended. Usage rose for the other two major listed players.
Bharti Airtel: Analysts expect the company to post a 50% rise in revenues compared with the same quarter a year ago, boosted by revenue from its acquisition in Africa. Bharti’s last year figures did not include numbers from its Africa operations. However, comparable revenue is expected to be almost flat, as per an average of five brokerages.
Since Zain, the company Bharti acquired in Africa, is still making loss, profit for the July-September quarter is expected to drop almost 20% from a year ago. Compared with the earlier quarter, however, profit is expected to rise 21%, as per average estimates.
The telco had recorded a profit of Rs 1,662 crore for the first quarter ended June on sales of Rs 12,231 crore. The African company functioned for only 23 days in June under Bharti’s ownership.
“Growth figures are not on a like-to-like basis, as 2QFY11 numbers would show full consolidation of Zain financials. On the domestic business front, revenue, EBITDA margin and PAT changes y-o-y would be 7.5%, -442 bps and -8.3%, respectively,” research and securities firm IIFL said in a note.
Credit Suisse said it expects the telco’s average revenue per user to fall 4.5% to Rs 306 in the September period, while brokerage Alchemy said its revenue per minute, another key indicator of profitability, is likely to decline 4% sequentially to Rs 0.43.
Bharti’s greatest challenge would be to turn around its loss-making African unit and also expand its footprint across the 15 geographies in that continent where the average telecom penetration is only 32% against 56% for India , analysts said.
Reliance Communications: The country’s second-largest wireless operator will see a profit drop of over 50%, as per consensus estimates from analysts and brokerage firms. For the period ended June, RCOM had a profit of Rs 250 crore against sales of Rs 5,109 crore. On a sequential basis, its profit is expected to witness a 75% increase from its June quarter earnings when it reported its worst-ever profit fall.
Brokerages Karvy and Nomura said that the Anil Dhirubhai Ambani Group-owned telco lags its peers in operating performance. The company already has amongst the lowest ARPU in the industry, yet it is likely to slip further 5% to Rs 128 as well as a 3% decline on the average number of minutes used per subscriber, brokerage ICICI direct said in a note.
Reliance Communications is also expected to gain from the rise in the rupee against the dollar. The company has foreign debt that is restated at current dollar price and adjusted in profits every quarter. This is a notional profit, not one the company actually gains till the loans are repaid.
In the earlier quarter, depreciation in the rupee hurt company profits.
Idea Cellular: Analysts say that Idea’s net profit is expected to decline by a little over 12% (y-o-y) as its bottomline will be impacted by higher interest costs and depreciation, while its revenues are slated to jump 26%. The reduced severity of tariff wars will enable revenue resilience, research analyst Harit Shah of Karvy said in a note. The contribution of Indus Towers will grow at a strong pace. Margins will remain flat, but higher interest and depreciation will reduce bottomline, the note said.
“Idea’s revenues (is) likely to be up 2% q-o-q. Idea has outperformed Bharti in terms of traffic growth in the last four quarters, while RCOM has consistently lagged behind and we expect this trend to continue. We build in traffic growth of 6.5% q-o-q for Idea and 3% q-o-q for RCOM. Revenue per minute in the quarter could be down 3% q-o-q for RCOM and 2.3% QoQ for Idea as a result of erosions in tariffs,” the IIFL note said
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