Soft June quarter likely for telecom sector

However, marginal rise in voice realisation a bright spot

The first quarter (April-June) results of the current financial year is likely to be a mixed bag for telecom companies. Analysts expect a marginal rise in realisation from voice services, while data growth is likely to be weaker. And, net profits are expected to be impacted by investment in spectrum purchase.

It is felt the trend of Bharti Airtel registering a better operating performance in both voice and data versus Idea Cellular would continue. Citi Research feels the trend should sustain, helped in the near term by Airtel’s better operating or financial metrics and in the medium term by its better ability to counter Reliance Jio on spectrum portfolio.

Kotak Institutional Equities says voice realisations are likely to be marginally up from the earlier quarter for both Airtel and Idea but the former is likely to report better growth. Regarding data, ICICI Securities feels revenue growth for the two companies would decelerate to 35.9 per cent and 28.1 per cent, respetively, over the same period a year before.

Kotak also said volume growth deceleration in the past couple of quarters is likely to continue, especially in the wake of accelerated fourth-generation technology (4G) network expansion. Airtel’s India wireless voice volumes are expected to increase 2.5 per cent quarter-on-quarter (qoq) and voice realisations to rise marginally to 33.7p versus 33.3p in the March quarter. “For Idea, we expect voice volumes to grow one per cent qoq, while realisations are expected to grow to 33.5p from 33.3p in the previous quarter,” it said.

Rohit Chorda and Abhas Gupta, the Kotak analysts, say Airtel’s India wireless revenue is expected to grow 4.2 per cent sequentially and 10.7 per cent over last year, to Rs 15,270 crore, driven by strong growth in the data business and stable voice business. Idea’s standalone revenue is expected to grow 0.8 per cent sequentially and 8.7 per cent over last year, to Rs 95,600 crore.

Religare Institutional Res-earch said Airtel and Idea are expected to report 1.5 per cent and 1.1 per cent sequential growth, respectively, in India wireless revenues. IDFC Securities expects positive seasonality to play out for GSM incumbents, driving a two to four per cent qoq growth in voice traffic. Meanwhile, operators have continued to expand their data capacity for 3G and 4G services, in the preparation to the run-down to the Reliance Jio launch. This is expected to put pressure on margins in the short term.

“We expect telecom operators to continue with the strategy of building up data capacity, in line with the eco-system for 3G/4G services,” said Abhishek Gupta and Sashi Bhusan of IDFC Securities. “Also, Reliance Jio’s expected commercial launch in the second quarter would bring in additional capacity, which could weigh on pricing/margins in the near term as incumbents strive to be the primary data SIM.”

The only likely setback for Airtel, said analysts, will be currency depreciation that will have a negative impact on its Africa’s revenues, which can dampen the company’s consolidated performance. Airtel’s Africa business, says IDFC Securities, is expected to report a two per cent qoq decrease in dollar revenue, primarily impacted by cross-currency headwind.