Fourth quarter likely to be muted for telecom sector

Margins may remain stable, revenues and volumes to stay under pressure

It's going to be another tough quarter for telecom companies. Total volumes or the total number of minutes under use on the networks of Bharti and Idea are unlikely to clock meaningful growth. Given that subscriber additions have slowed to a trickle, growth in minutes is expected to be stagnant. The Street is expecting a modest revenue growth of four per cent for both Bharti and Idea, as a result. With many players discontinuing services in several circles, there has been some uptick in subscriber additions in January and February, which would result in some growth in traffic on the networks. Volumes or the total number of minutes under usage is a good indicator of a telecom company's financials. The fourth quarter is expected to see an uptick in volumes driven by new subscriber additions.

Over the last few months, telecom players have seen subscriber additions dwindle steadily, which has impacted volumes and revenue growth. Core voice business is expected to grow 2-2.5 per cent while non-voice is expected to grow five per cent sequentially. The fourth quarter has seen some uptick in subscriber additions as several players have discontinued services. Bharti and Idea have seen subscriber additions of 4.7 million and 5.3 million, respectively, over January-February 2013. Edelweiss Securities has built in a sequential volume (total minutes) growth of 0.6 per cent for Bharti and 2.1 per cent growth for Idea.

Analysts expect wireless revenues to grow 2.5-3 per cent sequentially for Bharti and Idea. The industry has fast reached a saturation point and as a result the voice market is not growing meaningfully anymore. While growth in core voice market remains sluggish, there is some positive news on the margins front, as most players have weeded out free minutes from the network and competition has eased somewhat. Edelweiss Securities expects Bharti Airtel's operating margin to move up to 31 per cent from 30.3 per cent it reported in the third quarter for the India business. For its Africa business, the company is likely to exit the year with operating margin of 26.9 per cent, a sequential improvement of 40 basis points. Idea too, is expected to report a margin expansion in the quarter, driven by lower discounts. Analysts expect Idea's operating margins to improve by 50 basis points sequentially to 26.9 per cent.