Telecom Sector – Q3FY12 Results Preview

In the absence of lower than normal season uptick in the volumes, the Q3FY13 results of the telecom sector are expected to remain largely muted. This is largely represented in the dwindling subscriber base. The GSM mobile subscriber base has been witnessing a fall in the last few months. In Nov, the total subscriber base stood at 887.70 million, which was a fall from 920.3 million in July 2012. This drop can be attributed to large scale disconnection by some of the service providers.

The highest dip of over 17 million from Aug-Nov 2012 was in the subscriber base of Tata Teleservices, which reduced its user base to around 72.5 million. The company has already announced its plans to shut down operations in the Jammu & Kashmir, North-East and Assam circles. This was followed by Bharti Airtel, Uninor and Vodafone, whose subscriber base declined by 3.3 million, 1.5 million and 2.6 million, taking their wireless customer base to 183.6 million and 40.6 million and 150.8 million respectively. This is surely not an encouraging sign for the sector as a whole.

Key Parameters:

Minutes of Usage (MoU)

The telecom sector typically considers the second quarter as a weak one, which picks up only in the third quarter. In Q2FY13, telecom operators witnessed a decline in their MoU due to a seasonal slowdown as well as an increase in the rural subscriber base, as the Average Revenue Per User is lower there. However, as the Dec 2012 quarter marks the festive season, the companies may see some rise in the MoUs.

Average Revenue Per Minute (ARPM) and Average Revenue Per User (ARPU)

The Average Revenue Per Minute (ARPM), which has been seeing a declining trend over the past couple of quarters, saw some stability during Q2FY13 because of discontinuation of offers by the incumbents. We believe that this will improve during Q3FY13. It is expected that the ARPM to remain stable on a sequential basis and will see an increase on a yearly basis.

Overall, for Q3FY13, it can be said that the combination of increase in MoU and stable ARPM to push up the ARPU of the present players.

ARPU and ARPM for Major Listed Players In Last 5 Quarters

What To Expect For Q2FY13

If we look at the results posted by the leading three telecom companies, viz. Bharti Airtel, Reliance Communications and Idea Cellular in Q2FY13, all have witnessed an increase in their topline on a yearly as well as sequential basis. However, the bottomlines have remained under pressure. RComm and Bharti Airtel witnessed a decline on both YoY and QoQ basis.

However, we believe that the results for Q3FY13 may witness some improvement on the back of increase in MoU and flat voice ARPM. With regard to the EBITDA margins, Bharti Airtel, Idea Cellular and RComm may witness some improvement in the domestic performance indicators as mentioned above. There would be pressure on the bottomline in this quarter too, as the interest outgo that is witnessing an upward tick will play spoilsport. It can also be extrapolated that with increased data usage, the revenue from data services may bring some respite to the players. In addition, with new operators curtailing their operations, an improvement in the overall sentiment for the listed players cannot be ruled out.