Lesser competition, fewer discounts, more subscribers may boost growth

For the telecom companies, the fourth quarter of the financial year ended March 31 is expected to be better than the previous ones, despite the tough regulatory environment.

Companies are expected to grow thanks to lesser competition, fewer discounts and freebies, and improvement in subscriber additions after seven consecutive months of being in negative territory. However, EBITDA margins are likely to shrink due to higher subscriber addition costs and increase in diesel prices, according to analysts.

Bharti Airtel, the country’s largest subscriber, Reliance Communications, Idea Cellular and the State-owned Mahanagar Telephone Nigam Ltd are the only listed companies in the country.

“I think the worst is over for the sector. The overall performance of the sector would be better than the previous quarters, as all the negative news is discounted by the industry,” Alex Mathews, head of research at Geojit BNP Paribas Financial Services, said.

REVENUE PER MINUTE

The exit of players such as Etisalat, STel and Uninor has helped reduce competition. This is expected to have a positive impact on average revenues generated per minute by the incumbent operators.

“Introductory tariffs have been more or less eliminated. Instead of one paisa per second billing plans, now they start at 1.2 paise. The developments have dissuaded churn and have contributed to an expansion in average revenue per minute (ARPM),” Kunal Bajaj, independent analyst, said.

Of late, telecom operators are increasingly looking at ARPMs, a key metric to gauge a company’s financial strength, instead of the commonly used average revenue per user metric. Barclays expects a 0.9 per cent ARPM increase for Bharti Airtel, Idea Cellular and Reliance Communications. The increase in ARPMs would lead to a revenue growth of 5.5 per cent for Idea, 3.1 per cent for Bharti Airtel and 1.3 per cent for RCom on a quarter-on-quarter basis, the research firm said.

minutes of usage

However, analyst firms are divided on whether the minutes of usage will increase.

Independent analyst Bajaj believes the minutes of usage (MoUs) would be flat as the pricing regime has been stable in the last three months.

However, an Ambit Capital report suggests that the impact of tariff increases on MoUs is likely to be marginal due to ‘the more invisible nature of the increases’.

“We expect Bharti and Idea to report EBITDA margins of 29.5 per cent and 23.9 per cent respectively and EPS growth of 171 per cent and -22 per cent respectively (Bharti’s PAT in the previous quarter included Rs 2,400 crore of forex losses),” Ambit Capital said in the report.

However, the country’s regulatory environment remains tough, given the high reserve price for spectrum and issues related to re-farming and licence renewal, analysts added.

rajesh.kurup@thehindu.co.in

adith.charlie@thehindu.co.in

(This article was published on April 8, 2013)
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