PREVIEW - Bharti profit seen flat, price war takes toll

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Top mobile operator Bharti Airtel is set to announce flat quarterly profit growth after a vicious price war in the world's fastest-growing wireless market began eating into its market share and margins.

Rival Reliance Communications , which has been more aggressive in cutting call prices, is expected to be the worst-hit by the price competition and may report its quarterly profit has almost halved.

"I don't think there is room for the situation to worsen, but the pressure on earnings may continue for the next one or two quarters until some consolidation happens," said K.K. Mital, head of wealth management at Globe Capital.

"I think it is better to stay away from telecoms stocks for the time."

A crowded market with global players such as Vodafone, NTT DoCoMo and recent entrant Telenor has led to fierce competition, with incumbents forced to match sharply low call charges offered by smaller players.

The once booming sector has fallen off investors' radar. Bharti and Reliance were the only stocks that fell in 2009 among the 30-share benchmark index, which jumped 81 percent.

The industry is still signing up record users at a monthly average of more than 14 million. At the end of November, India had 506 million mobile users, behind China's about 740 million.

But the majority of new users are coming from rural areas, who spend less than their urban counterparts, and some use more than one connection to benefit from freebies offered by newer mobile firms.

In the December quarter, Bharti Airtel added 8.4 million mobile users, while Reliance Communication gained 7.7 million, but both were outpaced by sixth-ranked Tata Teleservices for four straight months to November.

Bharti, which is foraying into other emerging markets, this month agreed to buy a 70% stake in Bangladesh's Warid Telecom after its tie-up talks with South Africa's MTN failed for a second time last year.

Reliance has got the regulator's clearance for an IPO of its telecom tower unit, which banking sources say could raise as much as USD 1 billion and could provide much needed funds for the parent, which has high debt after its GSM expansion.

Other risks facing the sector include the delay in planned global auction of radio waves for advanced third-generation (3G) services and possibility of high bids in the auction. Analysts expect spectrum for all of India to cost between USD 1-1.5 billion.

Following are the December quarter forecasts based on a Reuters poll of 12 brokers. (rupees in billion)

Company	Mean	(% y/y)	Range	Date
Profit
Bharti Airtel	20.96	-2.9	18.93-22.91	Jan-22
Reliance Comm	7.14	-49.3	5.45-11.72	tba
Idea Cellular	1.42	-35.5	0.60-2.16	Jan-21
Revenue
Bharti	97.1	0.8	93.8-99.80
Reliance	56.5	-3.4	52.76-58.07
Idea	29.32	7.4	28.08-30.24

 

 

 

 

 

 

Share Price & P/E
Company	Share performance	P/E	Market Cap
	% chg in Sept qtr	forecast	(bn) Jan-18
Bharti	-21.4	13.6	$26.50
Reliance	-43.9	10.2	$8.60
Idea	-22.8	22.4	$4.00

 

 

 

 

The benchmark BSE index advanced 2% during the quarter. Share price and P/E as per Thomson Reuters data.

Estimates compiled from: Angel Broking, Motilal Oswal, Religare, Prabhudas Lilladher, Edelweiss, CLSA, Ambit, Antique, B&K Securities, Citigroup, Morgan Stanley and IDFC SSKI.