Motilal Oswal has come out with its earnings estimates on telecom sector for December quarter FY13. During 3QFY13, the research firm expect average wireless traffic for top 4 operators to grow by ~3% QoQ led by seasonal strength but impacted by decline in subscriber base. Wireless RPM is likely to increase by ~1% QoQ on a blended basis led by lower discounting.
Wireless traffic expected to grow ~3% QoQ; blended RPM to increase ~1% QoQ:During 3QFY13, we expect average wireless traffic for top 4 operators to grow by ~3% QoQ led by seasonal strength but impacted by decline in subscriber base. Wireless RPM is likely to increase by ~1% QoQ on a blended basis led by lower discounting. EBITDA margin to remain largely stable: Wireless EBITDA margin is expected to remain largely stable. Adjusting for the interconnect revenue booked by Bharti in 2QFY13, we expect company's consolidated/India & SA EBITDA margin to remain flat QoQ at 31/32.1%. Idea is expected to report consolidated EBITDA margin of ~27%, up 20bp QoQ. For RCom, we expect 3QFY13 consolidated EBITDA margin of 32.5%. Bharti Africa - growth momentum to remain steady: We expect 3/5% QoQ growth in USD denominated revenue/EBITDA for Bharti Africa, supported by strong traffic growth but offset by ~1% depreciation in Bharti's Africa currency basket v/s USD. Fifth consecutive month of decline in wireless subscribers: Industry wireless subscriber base is estimated to have declined to ~900m in November 2012 v/s peak of 934m in June 2012. Wireless subscriber additions have been in the negative territory for five consecutive months due to 1) industry-wide measures undertaken to rationalize channel commissions and control "rotational churn", 2) "clean-up" of dormant subscriber base by some operators and 3) implementation of stringent subscriber verification and acquisition process mandated by the government effective from November 2012. Profitability focus increasing for challengers; pricing seems to have bottomed out: Recent industry interactions indicate increasing focus on profitability and break-even targets across challengers, including measures like reduction in overall footprint. We believe these corrective measures would lower the overall pricing pressure emanating from smaller operators. However, increase in pricing would be contingent on industry discipline and market share aspirations exhibited by larger incumbents. Regulatory environment remains tough: Regulatory environment remains tough given high reserve price for spectrum and issues related to re-farming and licence renewal. We believe that there could be prolonged litigation between the industry and government on these issues. Valuation and view: During FY13E-15E, we expect 10/18/7% EBITDA CAGR for Bharti/ Idea/RCom led by 7/10/4% traffic CAGR in the India wireless business. Upgrade Bharti from Neutral to Buy (trades at 6.7x FY14E EV/EBITDA). Reiterate Buy on Idea (trades at 6.6x FY14E EV/EBITDA) and Neutral on RCom (trades at 6.8x FY14E EV/EBITDA).Expected quarterly performance| Company | Sales | Profit | ||||
| Dec '12 | % YoY | % QoQ | Dec '12 | % YoY | % QoQ | |
| Bharti Airtel | 202,275 | 9.5 | -0.2 | 7,152 | -29.3 | -0.8 |
| Idea Cellular | 54,826 | 9 | 3.2 | 2,623 | 30.5 | 9.3 |
| Reliance Comm | 52,679 | 4.3 | 1.3 | 2,465 | 2.4 | 86.3 |
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