Telecom Sector Update (March Quarter Results Preview)

The December quarter of fiscal 2011-12 saw a mixed bag of results that had Idea Cellular emerge as a clear winner among the top three listed Indian telecom players. While Idea reported a whopping 90 per cent (QoQ) rise in net profits, Bharti Airtel reported a flat QoQ growth and Reliance Communications (RCom) saw its profits dip by 25 per cent.

Going forward, in the March 2012 quarter, the sequential (QoQ) volume growth for Bharti and Idea is expected to be healthy, driven by higher subscriber growth, improving realisations and increase in minutes of usage (MoU). While Idea is expected to lead the telecom pack yet again, Bharti would also witness some momentum in its traffic growth as the company focuses on stemming its volume market share by adopting a tactical pricing method. However, this very same pricing aggression may have a bearing on its RPM which had seen significant uptick in the previous quarters.

RCom’s Q4 performance is expected to be very subdued as the company continues to face pressure on the volumes’ front owing to its weak wireless business. However, there are expectations that the company might be able to curb to some extent the fall in ARPU, which has been lagging in the previous quarters.

On an individual basis, Bharti may face some sequential revenue decline from its African business on account of rupee appreciation against dollar and a 10-day strike in Nigeria during the month of January. The company may also account for forex losses on account of (Indian National Rupee) INR appreciation. The INR loan given to its Sri Lankan subsidiary may lead to a transition loss on the consolidated level.

Overall, while the volume growth for telcos like Idea and Bharti may see robustness, the RPM is likely to remain stable as a result of tactical pricing approach adopted by the industry. Higher subscriber addition would also impact the ARPU but at a much slower pace. Finally, the pressure of higher interest expenditure may mar the profitability of the telecom players and one may see some amount of margin erosion.