Telecom Sector - Q1FY14 Preview

The telecom sector is likely to witness favourable results in Q1FY14. This expectation is based on the improving tariffs and evolving competitive environment in the Indian telecom space.

With the exit of a few players from the telecom space, the incumbents have witnessed a spurt in volume growth and a significant improvement in margins since H2FY13 on the back of lower subscriber acquisition cost. Therefore, they are likely to report better average revenue per minute (ARPM) in Q1FY14. In fact, the ARPMs have started improving from the second half of FY13, and it is critical for companies to drive these further.

Data is expected to be one of the major revenue drivers for the companies in this quarter, with the revenues from this segment likely to post growth of around 16%-17% on a sequential basis. The forex gains/losses and translation gains can also swing the net profits of telcos for the quarter.

There will be no meaningful impact of the sharp rupee depreciation on the P&Ls of Idea and Rcom even as we expect Bharti to report some forex losses. Better voice and volume growth for Bharti, Idea and Vodafone cannot be ruled out. More importantly, reduced discounting in the market will start to show up in the reported voice revenue per minute (RPMs) across operators from this quarter.

For Q1FY14, we expect modest revenue growth for the industry on the back of an increase in MOU, the voice ARPM inching up and the increasing share of value added services (VAS) in revenues. Among the top three operators, Bharti and Idea to are likely to report decent growth on the revenue front, while this may remain a bit subdued for RCom. Improvement in the EBITDA margins cannot be ruled out. We expect Idea Cellular to lead the pack in this quarter too. The sector's performance is likely to improve from this quarter onwards.