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Telecom
India
2QFY12E – seasonality/forex to hit sequential comps. We expect a weak Sep 2011
quarter for the Indian wireless players. September is typically a weak quarter for wireless
volume growth and Sep 2011 is unlikely to be any different. In addition, sharp Rupee
depreciation during the quarter is likely to result in substantial forex losses, especially for
Bharti. It is too early to assess the impact of recent tariff hikes, though we expect RPM
to trend up marginally. Remain constructive on Bharti and Idea. Cautious on RCOM.
Seasonality + forex losses = weak quarter
Exhibits 1, 2 and 3 give our Sep 2011 quarter earnings estimates for Bharti, RCOM, and Idea,
respectively. We expect a weak quarter across the board on sequential comps. Operational
performance is likely to be subdued on account of the seasonal deceleration in wireless volume
growth in India – potential volume decline for one or more players is also possible, even as we do
not forecast such a scenario. We expect RPMs to trend up marginally. We do note that it is a tad
early to assess the impact of recent tariff hikes on volume or realization given (1) the hike was
implemented for new subs to begin with; extant subs will move to revised base tariffs gradually,
and (2) Sep quarter seasonality will make separation of volume impact of tariff revisions difficult.
Forex impact of the sharp depreciation in Rupee versus the US$ in the September quarter will
exacerbate the impact of weak operational results, driving sharp decline in net income for both
Bharti and Idea. Forex impact on RCOM is particularly difficult to forecast – we make no attempt
to do so and assume zero forex gains/losses for the company.
Bharti – expect robust EBITDA growth; net income likely to decline
We expect Bharti to report a strong 5.8% qoq growth in consolidated EBITDA to Rs60.4 bn on
revenues of Rs175 bn, +3% qoq. Our numbers build in a consolidated EBITDA margin expansion
of 90 bps qoq to 34.5%. Strong expected EBITDA growth in Africa and passive infra segment and
likely sharp reduction in ‘others’ segment losses drive our robust consolidated EBITDA growth
forecast even as we expect India wireless EBITDA growth to be a tad muted. We build in 2.6%
qoq growth in India wireless EBITDA – driven by 1.6% qoq revenue growth and 30 bps qoq
margin expansion. Our net income forecast of Rs10.3 bn (down 16% qoq, 38% yoy) builds in
forex loss of Rs8 bn versus Rs1.7 bn in the previous quarter.
RCOM – full impact of 3G amortization to drive sequential EBIT decline
We expect 2% and 3.7% qoq growth in consolidated revenues and EBITDA to Rs50.4 bn and
Rs16.6 bn, respectively. We build in a sharp increase in depreciation to factor in full impact of 3G
amortization and expect a 6.4% qoq and 17% yoy decline in consolidated EBIT to Rs5.9 bn. For
the India wireless business we forecast a 0.9% qoq volume growth, data (EVDO, not 3G)-led RPM
improvement of 0.7% qoq, revenue growth of 1.6% and EBITDA growth of 1.2% (modest OPM
decline). As discussed earlier, we find forecasting RCOM’s forex gains/(losses) particularly difficult
and hence do not build in any. Our net income forecast is of Rs1.8 bn, a decline of 60% yoy.
Idea – India wireless volume/revenue growth leadership likely to sustain
We estimate consolidated revenues to come in at Rs46.4 bn (+2.7% qoq) and EBITDA to come in
flat qoq at Rs12.1 bn, implying an OPM decline of 60 bps qoq to 26%. Expect a modest 2.5%
wireless minutes growth and 0.5% RPM uptick qoq. Our PAT estimate of Rs1.26 bn (decline of
29% qoq and 30% yoy) builds in incremental forex losses of Rs400 mn qoq.
Bharti is likely to report on November 4, Idea between October 21 and 25, and RCOM in the
November second week.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Telecom
India
2QFY12E – seasonality/forex to hit sequential comps. We expect a weak Sep 2011
quarter for the Indian wireless players. September is typically a weak quarter for wireless
volume growth and Sep 2011 is unlikely to be any different. In addition, sharp Rupee
depreciation during the quarter is likely to result in substantial forex losses, especially for
Bharti. It is too early to assess the impact of recent tariff hikes, though we expect RPM
to trend up marginally. Remain constructive on Bharti and Idea. Cautious on RCOM.
Seasonality + forex losses = weak quarter
Exhibits 1, 2 and 3 give our Sep 2011 quarter earnings estimates for Bharti, RCOM, and Idea,
respectively. We expect a weak quarter across the board on sequential comps. Operational
performance is likely to be subdued on account of the seasonal deceleration in wireless volume
growth in India – potential volume decline for one or more players is also possible, even as we do
not forecast such a scenario. We expect RPMs to trend up marginally. We do note that it is a tad
early to assess the impact of recent tariff hikes on volume or realization given (1) the hike was
implemented for new subs to begin with; extant subs will move to revised base tariffs gradually,
and (2) Sep quarter seasonality will make separation of volume impact of tariff revisions difficult.
Forex impact of the sharp depreciation in Rupee versus the US$ in the September quarter will
exacerbate the impact of weak operational results, driving sharp decline in net income for both
Bharti and Idea. Forex impact on RCOM is particularly difficult to forecast – we make no attempt
to do so and assume zero forex gains/losses for the company.
Bharti – expect robust EBITDA growth; net income likely to decline
We expect Bharti to report a strong 5.8% qoq growth in consolidated EBITDA to Rs60.4 bn on
revenues of Rs175 bn, +3% qoq. Our numbers build in a consolidated EBITDA margin expansion
of 90 bps qoq to 34.5%. Strong expected EBITDA growth in Africa and passive infra segment and
likely sharp reduction in ‘others’ segment losses drive our robust consolidated EBITDA growth
forecast even as we expect India wireless EBITDA growth to be a tad muted. We build in 2.6%
qoq growth in India wireless EBITDA – driven by 1.6% qoq revenue growth and 30 bps qoq
margin expansion. Our net income forecast of Rs10.3 bn (down 16% qoq, 38% yoy) builds in
forex loss of Rs8 bn versus Rs1.7 bn in the previous quarter.
RCOM – full impact of 3G amortization to drive sequential EBIT decline
We expect 2% and 3.7% qoq growth in consolidated revenues and EBITDA to Rs50.4 bn and
Rs16.6 bn, respectively. We build in a sharp increase in depreciation to factor in full impact of 3G
amortization and expect a 6.4% qoq and 17% yoy decline in consolidated EBIT to Rs5.9 bn. For
the India wireless business we forecast a 0.9% qoq volume growth, data (EVDO, not 3G)-led RPM
improvement of 0.7% qoq, revenue growth of 1.6% and EBITDA growth of 1.2% (modest OPM
decline). As discussed earlier, we find forecasting RCOM’s forex gains/(losses) particularly difficult
and hence do not build in any. Our net income forecast is of Rs1.8 bn, a decline of 60% yoy.
Idea – India wireless volume/revenue growth leadership likely to sustain
We estimate consolidated revenues to come in at Rs46.4 bn (+2.7% qoq) and EBITDA to come in
flat qoq at Rs12.1 bn, implying an OPM decline of 60 bps qoq to 26%. Expect a modest 2.5%
wireless minutes growth and 0.5% RPM uptick qoq. Our PAT estimate of Rs1.26 bn (decline of
29% qoq and 30% yoy) builds in incremental forex losses of Rs400 mn qoq.
Bharti is likely to report on November 4, Idea between October 21 and 25, and RCOM in the
November second week.
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