Telecom sector results preview for Q3FY12: Motilal Oswal

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Telecom sector results preview for Q3FY12: Motilal Oswal

Motilal Oswal has come with its December quarterly earning estimates for cement sector. Domestic business PAT growth of 21/9% QoQ for Bharti/Idea would largely be driven by ~8% QoQ EBITDA growth. The research firm expects Bharti's losses in Africa business to reduce from INR4.2b in 2QFY12 to INR2.9b in 3QFY12.

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Motilal Oswal has come with its December quarterly earning estimates for cement sector. Domestic business PAT growth of 21/9% QoQ for Bharti Airtel /Idea would largely be driven by ~8% QoQ EBITDA growth. The research firm expects Bharti's losses in Africa business to reduce from INR4.2b in 2QFY12 to INR2.9b in 3QFY12. For RCom, we expect proforma PAT to decline 67% QoQ to INR1.1 billion.

Wireless traffic to grow 3-5% QoQ; RPM to increase 1-2% QoQ:

We expect wireless operators to report robust traffic growth of 3-5% QoQ led by strong season. We expect continued uptick in RPM (up 1-2% QoQ) driven by a) Subscriber migration to revised higher tariffs, and b) Seasonal increase in NLD/ILD/roaming/VAS services usage.

EBITDA margin to expand 70/20bp QoQ for Bharti/Idea:

We expect consolidated EBITDA margin for Bharti to increase 70bp QoQ to 34.4%. We expect margins to expand higher for India & South Asia business at 110bp QoQ driven by tighter cost control, post recent restructuring and lower SG&A. We expect Idea to report lower QoQ EBITDA margin increase of ~20bp to 25.9%, primarily due to likely higher investments in 3G and new circles. RCom's EBITDA margin is likely to be down 40bp QoQ, given continued cost pressures.

QoQ PAT growth for Bharti/Idea driven by better operating performance:

Domestic business PAT growth of 21/9% QoQ for Bharti/Idea would largely be driven by ~8% QoQ EBITDA growth. We expect Bharti's losses in Africa business to reduce from INR4.2b in 2QFY12 to INR2.9b in 3QFY12. For RCom, we expect proforma PAT to decline 67% QoQ to INR1.1b.

Industry subscriber adds down ~85% YoY; declined to 4m in Nov-11:

Industry net adds are down ~85% YoY to ~4m in Nov-11 largely due to negative net additions of 4.5m reported by Tata Teleservices. We believe decline in net adds is driven by (a) Market saturation in urban areas (market penetration is ~75% on pan-India basis), and (b) Lower aggression and high churn rate for challengers, which implies better competitive environment for incumbents. We believe lower net adds are unlikely to impact wireless revenues and could also drive cost savings.

INR depreciation likely to have INR12/share net worth impact for Bharti:

During 3QFY12, INR has depreciated against USD by ~9%. We have modelled 3QFY12 forex loss of INR2.5b (similar to 2QFY12) for Bharti and INR0.2b (INR0.3b in 2QFY12) for Idea. Assuming net forex exposure of ~USD10b, we expect net worth impact of INR47b (INR12/sh) due to QoQ forex movement on Bharti and INR9/sh for RCom.

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