Telecom
Volume growth to drive sales in Q1
We expect growth in volumes to drive revenue during Q1. This will be from better subscriber growth for incumbents (Bharti and Idea). We expect Bharti to register higher growth in revenue on QoQ basis compared to Idea Cellular driven by better subscriber growth and data business uptick. Operating margins of leading operators will witness flat to marginal expansion. Companies have reduced 3G services tariff to drive data usage. We believe that regulatory uncertainty continues to put pressure on stock performance. We continue to maintain our view that Bharti Airtel should be preferred in the sector considering the regulatory risk and because Idea Cellular is likely to face more damage despite strong operational performance on issues relating to higher spectrum pricing.
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m Revenue growth driven by volume – Idea to post highest QoQ growth: We expect revenue for telecom companies to grow by 1-3% on a QoQ basis on the back of minutes of usage growth. We expect revenue per minute to remain under pressure during Q1 due to the hike in service tax and reduction in 3G services tariffs.
m EBITDA margin likely to be flat to marginally positive: We expect the EBITDA margin to remain flat or a bit better for telecom companies on a QoQ basis. Higher minutes of usage will drive EBITDA growth rate. We expect Bharti’s margin to improve marginally despite the fall in revenue per minute due to scale benefit.
m Bharti remains our preferred pick: Bharti continues to be our preferred pick in the sector considering risk reward. Bharti will be relatively less impacted from a regulatory stand-point on one-time payout/re-farming of spectrum and removal of roaming fees. We have not factored in forex gain/loss in our estimates. We recommend profit booking on Idea in case the stock price further moves up by ~5% on better result expectation. Risk to our call: Any relief given by the regulator on spectrum pricing will lead to outperformance of Idea Cellular ober Bharti because its operations are local whereas Bharti is present in many countries.
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