With Reliance Jio
extending its free offer beyond December 2016 and the impact of demonetisation, analysts have cut their revenue forecast going ahead. CLSA believes that revenue and operating profit for incumbent operators will fall between 1-8 per cent over in the FY17-19 period. Revenue growth for the telecom sector in the September quarter fell to 4.4 per cent as compared to the year ago quarter largely due to pricing pressures brought on by free offers from Reliance Jio. The initial welcome offer announced by Reliance Jio
ends on December 3, the last day of the 90-day period. Analysts at IDFC Securities too believe that revenue growth would be muted. “While consolidation will be good for the industry but pricing pressure led by entry of Reliance Jio
would keep industry revenue growth subdued in second half of FY17 as well as FY18,” they say.
Most analysts believe Bharti, given its market share gains, spectrum, cash flow, network rollout and capacity is best placed to counter RJio and thus have a buy rating on the company. The company was the biggest gainer among telcos in the September quarter growing its revenues by 10 per cent year on year, while Vodafone and Idea posted 5.5 per cent growth. Thus the top three operators gained 7.2 per cent, while other operators shed 5 per cent. Bharti gained 170 basis points market share to 32.9 per cent.
The problem for incumbent operators has been slowing data revenue growth. From a year ago period (September quarter FY16) when data revenues were growing at 55 per cent, this metric has come down to sub-25 per cent. Bharti Airtel, however, has been leading its smaller peers on this count consistently in recent quarters while Vodafone has been the laggard. While pricing has been cut throat especially with the launch of Reliance Jio
services, data volumes too have been disappointing. From 70-85 per cent levels a year ago, volume growth is down to 35-55 per cent at the end of September quarter. So operators who are investing heavily in rolling out their data networks are taking a hit on multiple fronts without revenue growth to show for it. Neither volume growth or pricing is helping them justify the large investments both in the recent auctions as well as on 4G rollout especially by Idea Cellular and Vodafone which were lagging behind Bharti Airtel on 4G rollout. This is why IDFC analysts say that continued network spend and increase sales and administration costs will put pressure on margins of incumbent operators going ahead.