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We expect Telecom companies to report de-growth in wireless revenues (0.5-2.0%
Q/Q), led by seasonality. However, increased contribution of data is expected to
reduce the impact of voice-led seasonality during the quarter. We estimate 13-
15% Q/Q data revenue growth for the incumbents. Wireless EBITDA margin is
likely to contract slightly for both Idea/Bharti (-68/-62 bps Q/Q) led by decline in
wireless traffic. For Bharti Africa, we model flat sequential US$ revenue growth
due to significant depreciation in Africa revenue currency basket (v/s USD). The
street expects no impact on continuing hangovers like: (1) Reliance Jio Infocomm’s
4G launch, and (2) upcoming 900/1800 MHz auction. As a result, telecom stocks
delivered ~29% return over last 3-4 months. In our view, at current price level
both Bharti and Idea leaves no safety margin, we maintain SELL on Bharti/Idea.
Seasonal weakness in wireless volumes performance: We expect Bharti/Idea to
report a -0.5%/-2.0% Q/Q revenue growth in Q2FY15 Mobile India wireless revenues
led by volume de-growth. However, the growth on wireless data front is likely to
remain robust, expect strong volume (18/20% qoq) and revenue (13/15% qoq)
growth for Bharti/Idea. In Q2FY15, Idea is likely to lead the subscriber gross addition
and could add nearly 4.0 mn subscribers (v/s 2.0 mn for Bharti). We estimate Bharti’s
consolidated revenue to increase 1.0% Q/Q led by South Asia business and others,
partially offset by decline in India Mobile-Wireless revenue.
Improvement on ARPM front should continue: After ~9.2% improvement on ARPM
front in last eight quarters, we model 0.9/1.7% Q/Q increase in ARPM for the Idea
and Bharti. The ARPM growth would be delivered by stable voice realizations and
continued strong data growth.
Bharti Africa Performance to be impacted by currency depreciation: In Africa, we
estimate flat $-revenue growth on sequential basis due to significant depreciation
in its Africa revenue currency basket. Africa’s rupee revenue is expected to increase
by 1.0% Q/Q on account of 0.8% Q/Q depreciation in INR (v/s USD). We expect
Africa’s EBITDA margins to increase by 102 bps Q/Q to 25.4%, partially offset by
higher SG&A spend to win back subscriber in markets like Nigeria. PAT level loss in
Africa is expected to decline on sequential basis.
Reliance JIO 4G rollout, upcoming spectrum auction, key monitorables: After
aggressive competition in recent spectrum auction, key event to watch out would
be next round of spectrum auction (scheduled in 2HFY15). Additionally, 4G launch
plan of Reliance JIO, would be critical to watch given potential impact on data tariffs.
Reliance JIO would have to launch 4G services before May-2015 in order to meet
the roll-out obligations associated with its 2,300 band spectrum.
Maintain SELL rating on Idea/Bharti: After ~29% run-up in the stock price, in our
view major positive news is very well factored in the stock price. The hangover like
(1) Reliance JIO launch, and (2) upcoming spectrum auction could impact the overall
performance. In the past main trigger for the stock performance was curtailment
of freebies and margin improvement, which could take a hit post Reliance-JIO launch.
We maintain SELL on Idea/Bharti both of these have already reached our target
price of Rs.165/share (Idea) and Rs.405/share (Bharti). Since our SELL
recommendation Idea and Bharti had corrected nearly by 27% and 10%, respectively.
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