Competitive intensity has returned to haunt the telecom sector. Companies have been scrambling to garner subscribers, as the Supreme Court’s deadline for the expiration of the 122 2G licences draws closer. Also, players like Bharti have been stepping on the gas to acquire subscribers, as the company has seen its revenue market share grow at a slower pace than others like Idea and Vodafone. Overall additions by the industry would be lower at 21 million in the June quarter, compared to 25 million in the March quarter, as some have not added any new subscribers.
Analysts expect competitive intensity to worsen as companies battle for revenue and subscriber market share. This competitive intensity is likely to impact average revenue per minute (ARPM), which has emerged as a key measure of profitability. Analysts say it’s critical to watch for growth in minute volumes and ARPMs because if they are seen to be declining, it would impact the sector’s profitability.
So, what’s in store for the key listed players in the sector? Analysts expect Bharti to grow revenues (South Asia) by three per cent quarter-on-quarter (q-o-q). Bharti has been tweaking its rate mix to recapture some of the revenue market share it lost earlier, which might impact its profitability. IIFL Institutional Equities expects Bharti’s Ebitda to grow by 7.5 per cent sequentially, as it expects the enterprise business to look up. “For the African business, revenue growth will likely be 2.8 per cent q-o-q in dollar terms and margins may expand 100 basis points owing to lower crude prices and operating leverage.” In Q1, analysts expect Bharti’s margins to be around 33.8 per cent.
Idea, on the other hand, is expected to see a sequential increase in revenues at four per cent, while its margins may remain flat at 25.4 per cent on higher costs. IIFL, however, expects Idea to clock a 6.7 per cent growth in revenues q-o-q. Karvy expects Reliance Communications to grow revenues by two per cent q-o-q, since subscriber additions have declined in this quarter with flat Ebitda margin.
Foreign currency fluctuations are likely to impact performance this quarter. IIFL is estimating forex loss of Rs 210 crore for Bharti in this year’s first quarter versus Rs 180 crore in the March quarter. “We estimate an adverse impact of Rs 1,600 crore on the balance sheet due to forex.” Forex losses are expected to take away much of the revenue growth gains of Idea, say analysts. IIFL is estimating a forex loss of Rs 22.6 crore in June quarter versus a forex gain of Rs 13.5 crore in March quarter. RCom’s balance sheet is likely to see a Rs 2,400 crore impact due to forex fluctuations.