Idea worst hit in Q4 among telecom firms

Jio’s revenues can help sector report sequential revenue uptick

The March quarter (Q4) performance of most telecom service providers is expected to be weak even as subscriber additions were on the rise.

Downtrading of high-value customers on the back of price cuts and fall in international terminal rates from February 1 will result in lower revenues and profits.

Sequentially, revenues for Bharti Airtel and Idea are expected to decline 6-8 per cent. Operating profit is expected to be 15-22 per cent lower on higher network costs and muted revenues.

Hetal Gandhi, director, CRISIL Research, said the industry’s revenue was estimated to grow 14 per cent year-on-year (y-o-y) in Q4 and 4 per cent sequentially, owing to addition of newbie Reliance Jio’s revenues.

The deteriorating operating environment will reflect sharply on Idea’s bottom line, given it has a pure play exposure in India. Weak revenues, higher interest and depreciation costs mean that the company is expected to report a fivefold increase in losses to ~15 billion.

Bharti Airtel, having Africa operations, direct-tohome, enterprise and tower businesses, could end up slipping into the red or report a marginal profit during the quarter, according to brokerages.

Idea has consistently suffered losses over the last five quarters. Bharti’s net profit had declined to ~3 billion in the December quarter from ~3.7 billion a year ago.

The shift of focus of telecom service providers on market share gains since January 2018 at the cost of profitability has aggravated the situation.

The sector might continue to witness aggressive pricing for the next 12 months, leading to market share losses for smaller players (15 per cent currently), according to analysts at Motilal Oswal Securities.

Though incumbents have lost 30 per cent of their revenue since the launch of Jio, their focus on arresting the loss due to subscriber churn and gaining market share is paying dividends.

Bharti Airtel has gained 470 basis points (bps) in active subscriber market share in the last 10 months, while Vodafone-Idea reversed the active subscriber market share loss in October, gaining 200 bps in the last three months. Further, aggregate net-debt to operating profit (of Big Three) is likely to worsen in FY19. CRISIL Research, however, expects the ratio to improve after 2019 on monetisation of non-core assets, better revenue growth, stable margins and synergies after consolidation.

While larger telcos fight it out for subscribers of smaller operators, the consolidation in the sector is hurting the revenues of Bharti Infratel, which offers passive infrastructure services to operators. Loss of tenancies in the December and March quarters will affect the company’s operating metrics.