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Telecom
India
4QFY11E preview. We expect robust volume growth to sustain for the GSM incumbents
Bharti and Idea and remain muted for RCOM on account of the ongoing portfolio
rebalancing. 4QFY11E earnings reports will also yield initial indicators on (1) the impact
of MNP on RPM – we expect the impact to be gradual and build in a modest 0.5-1.5%
qoq decline in RPM, and (2) 3G uptake. Bharti’s net income will likely get a boost from
non-recurrence of re-branding costs and forex losses. We remain Cautious.
March 2011 quarter – expect strong volume momentum to sustain
Exhibits 1, 2 and 3 give our March 2011 quarter earnings estimates for Bharti, RCOM and Idea,
respectively. We expect some, though not meaningful, deceleration in sequential volume growth
for Bharti and Idea. Selective post-MNP pressure in the post-paid segment is likely to pressure RPM
a tad, though not much – we build in 0.5-1.5% qoq RPM decline for the three players under our
coverage. Put together, we estimate 3-6.3% sequential growth in wireless revenues for the three
operators. MNP and 3G launch expenses will likely keep margins under check. At the net income
level, Bharti is likely to benefit from lower forex losses while RCOM could have a negative swing.
Bharti – expect a strong operational quarter; forex swing to aid net income performance
We estimate a 4.7% and 6.7% qoq growth in consolidated revenues and adjusted EBITDA to
Rs165 bn and Rs56.8 bn, respectively. We expect robust growth across segments. For the India
wireless segment, we estimate 5.5% qoq growth in network traffic, 1% RPM decline, 4.6%
revenue growth, and a 50 bps decline in OPM. For the Africa business, we estimate 4.5% qoq
revenue growth in Re terms and a 130 bps improvement in OPM, driving a strong 9.6% qoq
growth in adjusted EBITDA. Our net income forecast of Rs18.4 bn (+41% qoq) builds in zero forex
gains/ losses versus a loss of Rs1.5 bn in the previous quarter. We build in some impact of
incremental amortization and interest costs on account of partial 3G launch.
RCOM – expect improvement but still likely to be weak relative to Bharti and Idea
We estimate 3.9% qoq growth in revenues and 4.1% in EBITDA at the consolidated level to Rs52
bn and Rs17.4 bn, respectively. For the wireless segment, we expect a 3.3% qoq growth in
revenues on the back of 3.8% growth in minutes, and 0.5% qoq decline in RPM. We shall keenly
monitor the performance of non-wireless segments – performance has been disappointing for the
past few quarters. Our net income forecast for the quarter is Rs2.9 bn (down 40% qoq) and builds
in net interest cost of Rs2.4 bn versus Rs1.3 bn in the previous quarter.
Idea – likely to post the strongest qoq growth, again
We expect Idea to report a revenue growth of 6.5% qoq to Rs42.5 bn, and EBITDA growth of
6.2% qoq to Rs10.1 bn for the March 2011 quarter. We estimate qoq minutes growth of 7.6%
and an RPM decline of 1.4% qoq. We build in flat OPM for the wireless segment as well as at the
consolidated level. We do not build in any incremental 3G-related interest or amortization cost.
Our net income forecast for the quarter stands at Rs2.5 bn (+4% qoq).
Cautious on structural issues; be wary of extrapolating short-term trends
Extrapolating short-term trends in the sector is fraught with risk; hence even as we expect the
quarter to be robust, we think it would be early to start calling it a turnaround for the sector.
We believe it is critical to appreciate the structural over-capacity issue with the industry. The Indian
wireless market has seven players with substantial capital committed and reasonable balance
sheets. Events like MNP and 3G competition are yet to play out completely. We remain Cautious.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Telecom
India
4QFY11E preview. We expect robust volume growth to sustain for the GSM incumbents
Bharti and Idea and remain muted for RCOM on account of the ongoing portfolio
rebalancing. 4QFY11E earnings reports will also yield initial indicators on (1) the impact
of MNP on RPM – we expect the impact to be gradual and build in a modest 0.5-1.5%
qoq decline in RPM, and (2) 3G uptake. Bharti’s net income will likely get a boost from
non-recurrence of re-branding costs and forex losses. We remain Cautious.
March 2011 quarter – expect strong volume momentum to sustain
Exhibits 1, 2 and 3 give our March 2011 quarter earnings estimates for Bharti, RCOM and Idea,
respectively. We expect some, though not meaningful, deceleration in sequential volume growth
for Bharti and Idea. Selective post-MNP pressure in the post-paid segment is likely to pressure RPM
a tad, though not much – we build in 0.5-1.5% qoq RPM decline for the three players under our
coverage. Put together, we estimate 3-6.3% sequential growth in wireless revenues for the three
operators. MNP and 3G launch expenses will likely keep margins under check. At the net income
level, Bharti is likely to benefit from lower forex losses while RCOM could have a negative swing.
Bharti – expect a strong operational quarter; forex swing to aid net income performance
We estimate a 4.7% and 6.7% qoq growth in consolidated revenues and adjusted EBITDA to
Rs165 bn and Rs56.8 bn, respectively. We expect robust growth across segments. For the India
wireless segment, we estimate 5.5% qoq growth in network traffic, 1% RPM decline, 4.6%
revenue growth, and a 50 bps decline in OPM. For the Africa business, we estimate 4.5% qoq
revenue growth in Re terms and a 130 bps improvement in OPM, driving a strong 9.6% qoq
growth in adjusted EBITDA. Our net income forecast of Rs18.4 bn (+41% qoq) builds in zero forex
gains/ losses versus a loss of Rs1.5 bn in the previous quarter. We build in some impact of
incremental amortization and interest costs on account of partial 3G launch.
RCOM – expect improvement but still likely to be weak relative to Bharti and Idea
We estimate 3.9% qoq growth in revenues and 4.1% in EBITDA at the consolidated level to Rs52
bn and Rs17.4 bn, respectively. For the wireless segment, we expect a 3.3% qoq growth in
revenues on the back of 3.8% growth in minutes, and 0.5% qoq decline in RPM. We shall keenly
monitor the performance of non-wireless segments – performance has been disappointing for the
past few quarters. Our net income forecast for the quarter is Rs2.9 bn (down 40% qoq) and builds
in net interest cost of Rs2.4 bn versus Rs1.3 bn in the previous quarter.
Idea – likely to post the strongest qoq growth, again
We expect Idea to report a revenue growth of 6.5% qoq to Rs42.5 bn, and EBITDA growth of
6.2% qoq to Rs10.1 bn for the March 2011 quarter. We estimate qoq minutes growth of 7.6%
and an RPM decline of 1.4% qoq. We build in flat OPM for the wireless segment as well as at the
consolidated level. We do not build in any incremental 3G-related interest or amortization cost.
Our net income forecast for the quarter stands at Rs2.5 bn (+4% qoq).
Cautious on structural issues; be wary of extrapolating short-term trends
Extrapolating short-term trends in the sector is fraught with risk; hence even as we expect the
quarter to be robust, we think it would be early to start calling it a turnaround for the sector.
We believe it is critical to appreciate the structural over-capacity issue with the industry. The Indian
wireless market has seven players with substantial capital committed and reasonable balance
sheets. Events like MNP and 3G competition are yet to play out completely. We remain Cautious.
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