Telcos world leaders in profitability

Indian telecom operators are world-leaders in terms of profitability, enjoying better EBIDTA margin than their counterparts in developed countries.

The EBIDTA margin is EBITDA (or earnings before interest, tax, depreciation and amortisation) as a percentage of sales and analysts often consider this a more useful indicator of efficiency than operating margins because it excludes non-cash items.

A report by Merrill Lynch says that the Indian telecom industry's EBIDTA margin stands at 37.5 per cent, ahead of the US (32), the UK (25.6), Japan (26), France (35.6), Australia (30.5), Switzerland (37.3), Germany (34.9), the Netherlands (31.2) and Finland (25).

Most observers agree that Indian telecom companies' efficiency is chiefly because of better cost management, higher usage and rapid growth. 
 

DIAL 'E' FOR EFFICIENCY
NAME	EBITDA margin (%)
Malaysia	48.2
Singapore	43.0
Canada	42.5
New Zealand	41.0
Belgium	40.7
Italy	40.2
China	39.7
India	37.5
Switzerland	37.3
Sweden	37.0
Austria	35.8
France	35.6
Germany	34.9
Korea	34.9
Ireland	33.5
US	32.0
Australia	30.5
Denmark	26.0
Japan	25.9
UK	25.6

"Indian companies have been seeing better EBIDTA margins for the last couple of years basically due to economies of scale, better pricing and lower manpower deployment," said Manoj Tirodkar, chairman and managing director, GTL, a leading network services company.

Moreover, unlike global companies like France Telecom and Vodafone, Indian companies have not gone in for acquisitions which take time to register returns, he added.

"The operating costs in the country are much lower compared with that in developed nations. For example, cost levels and overheads in the UK and the US are much higher than that in India, and companies there are also not adequately compensated by way of subscriber additions, as happens in India," said Reliance Group President (Finance & Treasury) Ramesh Venkat.

India also has the world's second-highest usage statistics at around 400 minutes per month.

Bharti Airtel, Reliance Communications and Hutchison Essar lead the pack with EBITDA margins of more than 40 per cent. A UBS report predicts that both Bharti and Reliance Communications will have 41.5 per cent EBIDTA margin when they announce their quarterly numbers this month. Idea, the report says, may have a 34 per cent margin.

"The growth in revenues and profitability is due to the increase in volume, and this is in spite of a fall in average revenue per user," said Sumit Modi, an analyst with Emkay Shares.

The fall in tariffs was more than offset by a growth in the subscriber base, with Indian service providers adding over 6 million users every month, he added.