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Telecom
ƒ Sharp decline in subscriber addition
Subscriber addition has fallen considerably in Q2FY12, with only 13.9
million subscribers added in the first two months of the quarter against
28.6 million added in April–May 2011. We expect the industry to add
21.2 million subscribers in Q2FY12 as against 40.2 million in Q1FY12.
The slowdown in net adds was on the back of cessation of
unsustainable customer acquisition offers from new entrants, reduction
in the dual SIM phenomena and inactive subscribers added during
previous quarters beginning to reflect in higher churn. We expect 2.3%
QoQ revenue growth for telecom service providers on the back of 2.5%
subscriber growth.
ƒ Traffic growth to moderate in cyclically weak quarter
The second quarter is cyclically weak in terms of volume growth for
telecom operators. We expect 2.6% QoQ domestic volume growth for
our telecom coverage universe in Q2FY12 to 448 billion minutes as
against 4.8% growth in Q1FY12. ARPM across players is expected to
remain stable (41-44 paisa).
ƒ EBITDA margin to remain subdued
Margins are expected to contract on a QoQ basis across telecom service
providers due to lower traffic growth and increasing network operating
expenses on the back of 3G rollout. However, this would be partly
compensated by lower selling and promotional expenses on account of
lower subscriber addition. The only exception would be TTML, which is
expected to witness a slight expansion in EBITDA margins on account of
increasing data usage on Photon+ devices. Margins for Tulip Telecom
are expected to expand on account of rising share of revenue from fibre
optic network. PAT margins would show a mixed trend, with all
operators expected to charge 3G license fees amortisation in P&L.
However, RCom may report lower interest expense on account of
refinanced debt from Chinese banks. Telecom operators may report
foreign currency translation loss due to severe depreciation of the INR
against US$ in the last few weeks.
ƒ Regulatory developments - positive sentiment for industry
The telecom ministry had indicated at a more balanced and growth
oriented new telecom policy by October 2011. This, coupled with the
ongoing 2G investigation, has helped rebuild investor confidence in the
sector, which is also reflected in a re-rating of both Airtel and Idea
Cellular in the last few months. However, DoT’s draft policy indicates
one-time spectrum fees and spectrum re-farming, which would be a
dampener for both players. The CBI has indicated towards further probe
in ADAG’s role in SWAN Telecom, which may lead to more downside in
RCom.
Company specific view
Company Remarks
Bharti Airtel Higher network operating expense due to 3G rollout would be partly compensated by
lower SG&A expenses on account of lower subscriber addition in the domestic
market. The African business would post about 67 bps expansion to ~27%. We
expect it to add 4.6 million subscribers in India and SA and 2.3 million in Africa. India
ARPU would fall 1.2% to | 188 while that of Africa would decline 0.8% to US$7.2. 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
OnMobile OnMobile is expected to witness a slowdown in its domestic business owing to new
recommendations of Trai regarding confirmation by subscribers for activation of VAS.
Also, declining discretionary spend by subscribers owing to the economic slowdown
and tighter sharing norms from telcos would be a dampener
Reliance Comm. We expect RCom to add 6.3 million subscribers. We expect ARPU to fall 3.0% to |
100 while MoU would decline 2.5% to 227 and ARPM is expected to remain stable at
44 paisa. The broadband and global revenues are expected to decline 9.3% QoQ
TTML Subscriber addition is expected to be around 1.8 million though active subscribers
may fall. ARPU is expected to decline marginally by 0.7% to | 183 (for active
subscribers) while MoU is expected to decline by 0.2% to 415. 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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