Angel expects telecom revenue growth to be modest

Angel Broking Q3FY2013 Results Preview for Telecom sector:

For 3QFY2013, we expect revenue growth to be modest on the  back of increase in MOU, a slight inch up in VAS share and flat  voice ARPM. Amongst the top three operators, we expect Bharti  and Idea to post a revenue growth of 0.7% and 2.6% qoq,  respectively. On the EBITDA margin front, we expect the margin  of Bharti to grow by 18bp qoq to 31.5% led by some  improvement in domestic KPIs. The EBITDA margins of Idea  and RCom are expected to increase by 29bp and 46bp qoq to  27.1% and 31.9%, respectively.

Industry dynamics are currently pointing towards a possible  consolidation in the near term. During the past two months, policy  uncertainty regarding one-time spectrum fee and 2G auction were  partially addressed but exact payout towards spectrum renewals,  spectrum re-farming and excess charge remains uncertain as pan  India reserve price remains undiscovered.

In our view, telecom industry can improve structurally only after  data revenues start picking up which still looks far. Telecom  stocks are currently trading at close-to-moderate valuations,  which we believe, is justified given the low business returns and  partially uncertain environment which might pose huge risk to  the overall profitability of these companies. We are currently  neutral on the telecom sector and will refrain from taking any  call till financial clarity on the stocks emerges. Bharti continues  to be our preferred pick amongst telcos due to its low-cost  integrated model (owned tower infrastructure), potential  opportunity to scale up in Africa, established leadership in  revenue and subscriber market share, relatively better KPIs and  upside in stock price on account of listing of Bharti Infratel.

Quarterly estimates (Rs Cr.)

Note: Price as on December 31, 2012; Change is on a qoq basis

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