The Hindu Business Line : Telecom majors may see 28% rise in profit

Mumbai, July 16 Riding strong net additions in subscribers, the domestic telephony service providers are expected to report an average growth of 28 per cent in net profit for the first quarter ended June 30, 2008.

The top three listed mobile operators in the country — Bharti Airtel, Idea Cellular and Reliance Communications (RCom) are likely to post an average revenue growth of 39 per cent, according to reports from leading brokerage firms. This is because the industry is expected to add over 25 million subscribers in the previous quarter, thereby, taking the wireless subscriber base to 276 million, Mr Himanshu Shah, analyst with Religare Securities, said in a recently released report.

Capex spend

The momentum in subscriber additions continues to be strong primarily driven by better coverage and fierce competition on the tariff front. However, the profit growth on a sequential basis is expected to be flat because of higher interest and depreciation costs towards capex funding.

The sector is undergoing a capex-intensive cycle with launches in new circles and expansion in the existing circles, each player trying to grab market share ahead of launch of services by the new players, Mr Shah said in the report.

While RCom has committed Rs 24,000 crore as capital investment for the fiscal ending March 2009, Idea Cellular will spend about Rs 10,000 crore.

According to a research report from Motilal Oswal Securities (MOSL), margins from the wireless business for the quarter would be impacted negatively due to discontinuation of the two per cent waiver on licence fee that was available to incumbent GSM operators (the first two operators in each circle) till the previous fiscal.

ARPU from wireless operations, which currently are the lowest in the world, are expected to decline by about 3-4 per cent on a quarter on quarter basis, according to the MOSL report. In April, ARPU for the GSM segment stood at Rs 264, while that for the CDMA sector stood at Rs 159.

Revenue growth

Analysts expect that revenue growth will be the highest at Idea Cellular, which is expected to grow 43 per cent (the company would be growing from a smaller base than the top players, of course) on a year ago basis, followed by Bharti at 41 per cent and Reliance Communications at 32 per cent.

“As is the case for Bharti and RCom also, we expect the strong growth (of Idea Cellular) to be driven chiefly by continuing scale benefits and operating leverage,” Mr Harit Shah, Telecom Analyst for Angel Broking, said.

However, some analysts feel that the rupee’s steep depreciation in the first quarter could drag those companies, such as Idea Cellular and Bharti Airtel that have foreign currency loans on their books.

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