Telecom Sector’s Q4FY13 Results Preview

While Bharti Airtel and Idea Cellular are likely to benefit from a strong subscriber addition in Q4FY13, the overall telecom stocks continue to trade at moderate valuations.

After a mixed performance in Q3FY13, it is expected that the telecom sector is likely to report an improved performance for Q4FY13. The prime reason behind this is likely to be a strong subscriber addition, especially for the listed players like Bharti Airtel and Idea Cellular. 

Data usage is finally gaining a footing for companies like Bharti Airtel and Idea Cellular. The data metrics would be important in gauging the response and in determining whether the reduction in data tariffs is leading to elasticity. Also, the trend in 3G uptake is to be watched closely. 

On the other hand, certain operators such as Uninor and Videocon had shut operations in select circles during the quarter as they had failed to retain spectrum in the auctions. It is expected that major operators like Bharti and Idea would be benefitted from the development in terms of subscriber additions. 

The recent trends in revenue market share and subscriber market share have shown the incumbents gaining in terms of both these parameters following the withdrawal of certain operators from select circles and a decline in the competitive intensity. Some regulatory concerns such as 3G ICR (intra-circle roaming) issues have emerged while there is no clarity on issues such as one-time spectrum payment and spectrum reframing. 

In the listed domain, Bharti Airtel may witness a flattish topline growth on a sequential basis mainly led by its Indian and South Asian mobile businesses. On the EBITDA front some improvement may be seen backed by its mobile business in India and Africa. There has been some development in the two regions in the last couple of quarters. 

Idea Cellular may report a better topline backed by an improvement in traffic. Also, better realisations and a stable MOU are likely to augur well for its EBITDA.

On the valuations front, the stocks in the telecom sector on the listed space are currently trading at close-to-moderate valuations. It is somewhat justified looking at the low business returns and partially uncertain environment, which might pose a huge risk to the overall profitability of these companies. However, till then we maintain a cautious approach on the sector before things materialise further. 

The dynamics in the industry are currently pointing towards a possible consolidation in the near term and a few operators, like Bharti, Vodafone, RCom, Idea, BSNL, Aircel and Tata Teleservices are slated to continue with their operations. In the last couple of quarters, policy uncertainty regarding one-time spectrum fee and 2G auction were partially addressed. But the exact payout towards spectrum renewals, spectrum re-farming and excess charge remains uncertain as pan India reserve price remains undiscovered.