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Telecom
�� Peaking subscriber addition
We expect the industry to add 47 million subscribers in Q1FY12,
which is the lowest in the last seven quarters, indicating peaking
subscriber addition. The slowdown in net adds is partly on the back
of reduced competitive intensity and cessation of unsustainable
customer acquisition offers from new entrants. We expect the
overall subscriber base to increase to 851 million by the end of
Q1FY12. We expect 3-5% QoQ revenue growth for telecom service
providers (adjusting for RCom’s IRU income in Q4FY11) while the
sector is expected to witness 11.4% YoY growth (ex-Zain).
�� Traffic growth
The domestic traffic of our coverage universe is expected to post a
growth of about 6.3% QoQ in Q1FY12E to 443 billion minutes as
against 5.8% QoQ in Q4FY11. Reliance Communication would
continue to prune free minutes on the network resulting in lower
growth of 4.4% in traffic. ARPM across players is expected to
decline only marginally (41-44 paisa) while it may remain stable for
Reliance Communication.
�� EBITDA margin to show mixed trend, PAT margin to take a beating
Margins would show a mixed trend with Idea Cellular exhibiting YoY
expansion in margins as competitive intensity has declined
significantly from Q1FY11. However, with 3G rollout and slower
growth in MoU, margins would remain under pressure on a
sequential basis. Airtel, on the other hand, would witness YoY
decline in margins due to full quarter impact of Zain. However, a
sequential improvement in Africa (175 bps to 28.0%) would aid
margin expansion QoQ. Both RCom and TTML would continue to
witness profitability erosion with steeper than industry decline in key
metrics and eroding subscriber quality. PAT margins across players
(except Airtel) would decline substantially as operators have
completed 3G rollout and would start charging interest cost and
amortisation to P&L. We have factored in interest cost of ~ | 350
crore for RCom on account of FCCB redemption in May 2011.
�� Regulatory developments - positive sentiment for industry
DoT recently announced that the new telecom policy would be
finalised by October 2011. Also, the several high profile arrests by
CBI in the 2G scam have helped build investor confidence in
incumbent players, which have so far remained clean of any
allegation like Bharti Airtel and Idea Cellular. This is also reflected in
the price. With DoT’s indication of a level playing field and lenient
M&A policy, we believe the sector may witness a re-rating.
Company specific view
Company Remarks
Bharti Airtel Margins in the Indian business are expected to remain more or less stable while the
African business would post about 170 bps expansion to ~28%. We expect it to
add 8.0 million subscribers in India and SA and 2.2 million in Africa. India APRU
would fall 1% to | 192 while that of Africa would decline 0.8% to US$7.1. With the
management's focus on increasing usage in Africa, we expect MoU to increase
2.5% QoQ to 118. We expect other businesses to grow at a moderate 3% QoQ
Idea Cellular We expect Idea to add 6.7 million subscribers with a 2.1% QoQ decline in ARPU to
| 158. MoU is expected to decrease 2.0% to 389 resulting in ARPM remaining at 41
paisa. Idea would start charging interest on 3G related debt and amortisation of
license fees to P&L resulting in incremental charges to the tune of | 180 crore
OnMobile OnMobile is expected to launch services in more countries with Vodafone and
Telefonica. Additional revenue from these operators is expected to flow in this
quarter. Domestic operations may see an up-tick with competitive intensity starting
to ease off
Reliance
Comm.
RCom would add 6.8 million subscribers. We expect ARPU to fall 2.9% to | 104
while MoU would decline 2.0% to 236 and ARPM would remain stable at 44 paisa.
We do not expect any major up-tick from 3G in this quarter. The broadband
revenues are expected to decline marginally by 1.4% QoQ while global revenues
would fall by 2.6% QoQ adjusting for IRU income in Q4FY11
TTML Subscriber addition is expected to slow down with 0.5 million subscribers against
0.6 million in the last quarter. ARPU is expected to rise marginally by 0.3% to | 180
(for active subscribers) while MoU would remain stable at around 407. Key metrics
would fare better due to increasing usage of data card services
Tulip
Telecom
We expect improved realisation to aid revenue growth though new client addition
may remain at moderate levels
Source: Company, ICICIdirect.com Research
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Telecom
�� Peaking subscriber addition
We expect the industry to add 47 million subscribers in Q1FY12,
which is the lowest in the last seven quarters, indicating peaking
subscriber addition. The slowdown in net adds is partly on the back
of reduced competitive intensity and cessation of unsustainable
customer acquisition offers from new entrants. We expect the
overall subscriber base to increase to 851 million by the end of
Q1FY12. We expect 3-5% QoQ revenue growth for telecom service
providers (adjusting for RCom’s IRU income in Q4FY11) while the
sector is expected to witness 11.4% YoY growth (ex-Zain).
�� Traffic growth
The domestic traffic of our coverage universe is expected to post a
growth of about 6.3% QoQ in Q1FY12E to 443 billion minutes as
against 5.8% QoQ in Q4FY11. Reliance Communication would
continue to prune free minutes on the network resulting in lower
growth of 4.4% in traffic. ARPM across players is expected to
decline only marginally (41-44 paisa) while it may remain stable for
Reliance Communication.
�� EBITDA margin to show mixed trend, PAT margin to take a beating
Margins would show a mixed trend with Idea Cellular exhibiting YoY
expansion in margins as competitive intensity has declined
significantly from Q1FY11. However, with 3G rollout and slower
growth in MoU, margins would remain under pressure on a
sequential basis. Airtel, on the other hand, would witness YoY
decline in margins due to full quarter impact of Zain. However, a
sequential improvement in Africa (175 bps to 28.0%) would aid
margin expansion QoQ. Both RCom and TTML would continue to
witness profitability erosion with steeper than industry decline in key
metrics and eroding subscriber quality. PAT margins across players
(except Airtel) would decline substantially as operators have
completed 3G rollout and would start charging interest cost and
amortisation to P&L. We have factored in interest cost of ~ | 350
crore for RCom on account of FCCB redemption in May 2011.
�� Regulatory developments - positive sentiment for industry
DoT recently announced that the new telecom policy would be
finalised by October 2011. Also, the several high profile arrests by
CBI in the 2G scam have helped build investor confidence in
incumbent players, which have so far remained clean of any
allegation like Bharti Airtel and Idea Cellular. This is also reflected in
the price. With DoT’s indication of a level playing field and lenient
M&A policy, we believe the sector may witness a re-rating.
Company specific view
Company Remarks
Bharti Airtel Margins in the Indian business are expected to remain more or less stable while the
African business would post about 170 bps expansion to ~28%. We expect it to
add 8.0 million subscribers in India and SA and 2.2 million in Africa. India APRU
would fall 1% to | 192 while that of Africa would decline 0.8% to US$7.1. With the
management's focus on increasing usage in Africa, we expect MoU to increase
2.5% QoQ to 118. We expect other businesses to grow at a moderate 3% QoQ
Idea Cellular We expect Idea to add 6.7 million subscribers with a 2.1% QoQ decline in ARPU to
| 158. MoU is expected to decrease 2.0% to 389 resulting in ARPM remaining at 41
paisa. Idea would start charging interest on 3G related debt and amortisation of
license fees to P&L resulting in incremental charges to the tune of | 180 crore
OnMobile OnMobile is expected to launch services in more countries with Vodafone and
Telefonica. Additional revenue from these operators is expected to flow in this
quarter. Domestic operations may see an up-tick with competitive intensity starting
to ease off
Reliance
Comm.
RCom would add 6.8 million subscribers. We expect ARPU to fall 2.9% to | 104
while MoU would decline 2.0% to 236 and ARPM would remain stable at 44 paisa.
We do not expect any major up-tick from 3G in this quarter. The broadband
revenues are expected to decline marginally by 1.4% QoQ while global revenues
would fall by 2.6% QoQ adjusting for IRU income in Q4FY11
TTML Subscriber addition is expected to slow down with 0.5 million subscribers against
0.6 million in the last quarter. ARPU is expected to rise marginally by 0.3% to | 180
(for active subscribers) while MoU would remain stable at around 407. Key metrics
would fare better due to increasing usage of data card services
Tulip
Telecom
We expect improved realisation to aid revenue growth though new client addition
may remain at moderate levels
Source: Company, ICICIdirect.com Research
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