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Telecom
ƒ Strong subscriber addition, moderate revenue growth
The first two months of the quarter have seen high subscriber
addition at 42.2 million. We expect the overall subscriber addition
for the quarter at 58.3 million as against 51.3 million in Q2FY11.
This, coupled with the seasonal pick-up after a weak second quarter,
is expected to yield 3-4% QoQ revenue growth for telecom
operators. Also, with softening competitive intensity, the sector is
expected to witness strong 12.8% YoY growth (ex-Zain) after
recording moderate 7-8% YoY growth for the past few quarters.
ƒ Pick-up in traffic after seasonally weak quarter
We expect domestic traffic of our coverage universe to grow about
6.5% in Q3FY11 to 403 billion minutes as against 0.6% in a
seasonally weak Q2FY11. Reliance Communication may post lower
growth at about 3.2% as it further cuts free minutes on network
while Idea may post strongest growth of about 9.7% with robust
subscriber addition. ARPM, across players, is expected to remain
under pressure and witness a 2.1% QoQ decline. Decline in ARPM
will be lower for RCom at 1.3% to 43 paisa with tepid MoU growth.
ƒ ARPU decline - minimal
ARPU would continue to be under pressure but the rate of decline
will be moderate in the backdrop of softening competitive intensity.
We expect our universe ARPU to decline by about 2% QoQ. The
decline would be more pronounced for RCom at 3.7% to | 118.
ƒ Profitability to remain under pressure
Declining key metrics coupled with increased network operating
cost, MNP implementation cost and 3G roll out expenses would put
pressure on margins. We expect EBITDA margins across telecom
service providers to decline by 70-200 bps. The overall impact on
Bharti may be lesser as the margin in African operations is expected
to witness a 150 bps increase to 24.8%. Rising interest cost on
account of 3G related debt, is expected to weigh on the bottomline
of RCom and TTML who launched 3G services in this quarter. We
expect our telecom universe to post a 12.1% QoQ decline in PAT.
ƒ Regulatory concerns loom large
Regulatory concerns loomed large and the stocks would remain
subdued till further clarity emerges. Incumbents may have to shell
out more for higher spectrum while new players face the threat of
license cancellation. Nonetheless, the overall activity seems positive
for long-term sustainability of the sector
Bharti Airtel Margins in India would decline with rebranding exercise and higher network
expense while African margins would expand. India APRU would fall 3% to | 197
while that of Africa would decline 1%. We expect addition of 8.4 mn subscribers in
India, SA and 2 mn in Africa. Other businesses would grow a moderate 2-3% QoQ
Idea Cellular Idea would add 5.8 million subscribers in Q3FY11E. ARPU is expected decline 2.5%
to | 165. MoU is expected to increase 2% after a seasonally weak second quarter to
402 while ARPM would decline to 41 paisa. Idea will continue to capitalise interest
cost pertaining to 3G debt and amortisation of the 3G license
OnMobile OnMobile is expected to have launched services in more countries with Vodafone
and Telefonica. Additional revenue from these operators is expected to flow in this
quarter. However, domestic operations would remain under pressure as the telecom
space is witnessing intense competitive activity
Reliance
Comm.
RCom would add 6.0 million subscribers. ARPU would fall 3% to | 117 while MoU
would decline 2% to 270 and ARPM to 43 paisa. We will have to wait for the impact
of the launch of 3G services by RCom in this quarter. Both broadband and global
segment would remain stagnant in this quarter
TTML Subscriber addition would continue at a robust pace with over 1 million subscribers
added this quarter. The ARPU is expected to fall by a mere 0.4% to | 169 (for active
subscriber base) while MoU would improve 1% to 407. Key metrics would fare
better due to increasing usage of data card services
Tulip Telecom Better realisation coupled with higher client addition on the fibre optic network
would aid handsome revenue growth. Tulip has also won several orders during the
quarter. Revenues from that are expected to kick in by the end of FY11E
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