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India Telecoms
Seasonality to help revenue but watch the margin --
Q3FY11 preview: Bharti, Idea, RCOM, TTSL, TCOM
We forecast a healthy 3-5% Q/Q revenue growth for Bharti (ex. Africa), Idea
and RCOM but are concerned about margins and forecast a 20-50bp Q/Q
decline here. (Bharti consolidated: -70bp). We expect strong net adds,
seasonality, and reduced pricing pressure to boost top-line growth but
increases in marketing and network costs are likely to add some margin
pressure. For Tulip Telecom, we expect strong sequential growth at 6% and a
60bp margin expansion, while for Tata Communications we will be watching
the impact from Neotel.
• Expect strong volumes in Q3… Bharti, Idea, RCOM have reported strong
net adds (through November), up 37%/30%/15% Q/Q on a monthly run rate
basis. Based on this and some MOU stability, we forecast 5%/4%/4%
sequential growth in total minutes for Bharti/Idea/RCOM.
• …but also some ARPM declines: We expect holiday season promotions
and incumbents responding to circle/segment level offers to have driven
continued declines in ARPMs. For Bharti (ex-Africa)/Idea/RCOM, we
forecast a 0.7/0.6/0.6 paisa Q/Q blended ARPM decline in Q3 vs. declines of
0.4/1.5/flat seen in Q2. This drives Q/Q revenue growth of 4%/5%/3% Q/Q.
• Bharti Africa: expect robust revenue growth but continued margin
pressure: We forecast 9% Q/Q growth in Africa revenue driven by healthy
net adds and good price elasticity of 1.0. However, we believe re-branding
expenses, access charges, and network opex are likely to keep margins under
pressure and we forecast a 77bp Q/Q decline to 23.2%.
• Watch marketing and network expenses: We forecast 0.7pp/ 0.4pp/0.2pp
decline in wireless margins at Bharti (consol)/Idea/RCOM driven by
increases in network opex (as capex increases) and marketing costs.
• Maintain near-term caution: We expect 3G and MNP to drive price
competition in the high-value segment in Q4FY11. Regulatory clarity would
be well received in the medium term but the risk of excess spectrum fee
charges still remains, in our view.
• Forecast changes: For RCOM, we reduce our FY12E EPS by 5% driven by
the wireless business, while for Idea our FY11E EPS increases to INR2.3
(from INR1.9), given a delayed 3G license fee amortization. JPMe for Bharti
FY12 EPS is +2% to INR22.6 as we forecast stronger net adds. Our Dec-11
PTs for Bharti/Idea/RCOM are now INR380/60/160 vs. INR356/60/190
earlier.
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