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Telecom
India
India wireless – 2QFY12 review. Sep 2011 earnings reports from the Indian wireless
players disappointed a tad though not enough to alter our positive view on GSM
incumbents Bharti and Idea. Disappointment was driven by sedate and belowexpectations
India wireless volumes even as underlying upward RPM trajectory held up.
A more decisive call on whether minutes disappointment was just higher seasonality or
if there was some negative elasticity will have to wait for Dec 2011 earnings reports.
3G data off-take remained subdued. Bharti Africa had a strong quarter. We remain
constructive on Bharti and Idea and negative on RCOM.
2QFY12 financial performance – disappointing, on balance
Exhibits 1, 2, and 3 give the Sep 2011 quarter financial performance versus our expectations for
Bharti, Idea, and RCOM, respectively. 2QFY12 earnings reports from the listed India wireless
players disappointed – revenues, EBITDA, as well as net income (ex-forex) came in below our
expectations. Miss on India wireless expectations was driven by weak volume growth and margins
for Bharti and Idea; RCOM surprised marginally on volumes but disappointed on margins.
Reported revenues, RPM, and EBITDA were impacted by introduction of 3G ICR and SMS
termination. Underlying RPM uptick was modest. India non-wireless segments were weak for both
Bharti and RCOM. Bharti Africa did spring a positive surprise on revenues as well as EBITDA margin,
driven by strong volume growth during the quarter.
Key India wireless operational highlights from 2QFY12
Minutes – as discussed above, Bharti and Idea both disappointed on minutes while RCOM
surprised marginally. Bharti and Idea reported a ~2% qoq decline in minutes – the first time
either of the two have reported a sequential decline. Managements attributed the weak
volumes to higher-than-usual seasonality impact and were categorical in dismissing any theories
on negative elasticity in the market. We would have been worried about negative elasticity if
other players had reported weak volumes as well – however, Vodafone reported flat qoq
volumes, RCOM reported a 1.6% sequential growth, while Uninor reported 25.4% qoq uptick
in volumes (absolute addition of 4.5 bn minutes).
RPM trends were divergent – Bharti reported 1.2% qoq uptick, Idea 4.1%, RCOM 0.4%, and
Vodafone 2.6%. Reported RPM for Bharti and Idea was impacted by two factors – (1) 3G ICR
revenues and (2) SMS interconnect charges. Both these items impacted gross revenues as well
as IC costs (which went up substantially for Bharti and Idea despite the minutes contraction) –
EBITDA impact was marginally negative for Idea, and neutral for Bharti, in our view.
Nov-voice revenues – as % of revenues, non-voice was flat qoq for Bharti at 14.5%, while it
increased 110 bps qoq for Idea to 13.2%. Lack of traction in non-voice revenues disappointed
us, clearly depicting the subdued and below-expectations initial 3G off-take. Non-voice
revenues were aided by the 3G ICR and SMS termination revenues, as discussed above. Hence,
even the improvement in Idea’s case should not be viewed as underlying data traction. We do
note that some of the recent VAS regulations may have impacted non-voice revenues negatively.
We also highlight the divergent trends seen in non-SMS, non-voice revenue trajectory for Bharti
and Vodafone (see Exhibits 4-6).
Increase in churn rates for both Bharti and Idea was surprising given the broad assumption of
reducing competitive intensity in the market.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Telecom
India
India wireless – 2QFY12 review. Sep 2011 earnings reports from the Indian wireless
players disappointed a tad though not enough to alter our positive view on GSM
incumbents Bharti and Idea. Disappointment was driven by sedate and belowexpectations
India wireless volumes even as underlying upward RPM trajectory held up.
A more decisive call on whether minutes disappointment was just higher seasonality or
if there was some negative elasticity will have to wait for Dec 2011 earnings reports.
3G data off-take remained subdued. Bharti Africa had a strong quarter. We remain
constructive on Bharti and Idea and negative on RCOM.
2QFY12 financial performance – disappointing, on balance
Exhibits 1, 2, and 3 give the Sep 2011 quarter financial performance versus our expectations for
Bharti, Idea, and RCOM, respectively. 2QFY12 earnings reports from the listed India wireless
players disappointed – revenues, EBITDA, as well as net income (ex-forex) came in below our
expectations. Miss on India wireless expectations was driven by weak volume growth and margins
for Bharti and Idea; RCOM surprised marginally on volumes but disappointed on margins.
Reported revenues, RPM, and EBITDA were impacted by introduction of 3G ICR and SMS
termination. Underlying RPM uptick was modest. India non-wireless segments were weak for both
Bharti and RCOM. Bharti Africa did spring a positive surprise on revenues as well as EBITDA margin,
driven by strong volume growth during the quarter.
Key India wireless operational highlights from 2QFY12
Minutes – as discussed above, Bharti and Idea both disappointed on minutes while RCOM
surprised marginally. Bharti and Idea reported a ~2% qoq decline in minutes – the first time
either of the two have reported a sequential decline. Managements attributed the weak
volumes to higher-than-usual seasonality impact and were categorical in dismissing any theories
on negative elasticity in the market. We would have been worried about negative elasticity if
other players had reported weak volumes as well – however, Vodafone reported flat qoq
volumes, RCOM reported a 1.6% sequential growth, while Uninor reported 25.4% qoq uptick
in volumes (absolute addition of 4.5 bn minutes).
RPM trends were divergent – Bharti reported 1.2% qoq uptick, Idea 4.1%, RCOM 0.4%, and
Vodafone 2.6%. Reported RPM for Bharti and Idea was impacted by two factors – (1) 3G ICR
revenues and (2) SMS interconnect charges. Both these items impacted gross revenues as well
as IC costs (which went up substantially for Bharti and Idea despite the minutes contraction) –
EBITDA impact was marginally negative for Idea, and neutral for Bharti, in our view.
Nov-voice revenues – as % of revenues, non-voice was flat qoq for Bharti at 14.5%, while it
increased 110 bps qoq for Idea to 13.2%. Lack of traction in non-voice revenues disappointed
us, clearly depicting the subdued and below-expectations initial 3G off-take. Non-voice
revenues were aided by the 3G ICR and SMS termination revenues, as discussed above. Hence,
even the improvement in Idea’s case should not be viewed as underlying data traction. We do
note that some of the recent VAS regulations may have impacted non-voice revenues negatively.
We also highlight the divergent trends seen in non-SMS, non-voice revenue trajectory for Bharti
and Vodafone (see Exhibits 4-6).
Increase in churn rates for both Bharti and Idea was surprising given the broad assumption of
reducing competitive intensity in the market.
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