Moneycontrol
Jan 11, 2018 04:30 PM IST | Source: Moneycontrol.com

Telecom Q3 preview: Experts see weak quarter for incumbents on IUC hit

The sector has taken a hit on its financials due to tariff wars, thereby affecting results for the first two quarters.

Telecom sector witnessed a tough year, facing challenges from an aggressive new entrant, which led to data and voice tariff wars.

The sector took a hit on its financials on the back of these price wars, thereby affecting results for the first two quarters. But many experts believe that with consolidation in the sector, there could be a chance of a likely bottoming out as well.

However, for the December quarter, multiple brokerages expect a no different story. They believe that incumbents could report a weak quarter and the slashed interconnect usage charge (IUC) is set to hit their numbers.

Moneycontrol takes a look at other such issues highlighted by brokerages.

Kotak Securities

The brokerage expects Q3 to be another weak quarter for the Indian wireless names.

“57 percent cut in mobile termination rate (MTR), effective Oct 1, 2017, is likely to impact Bharti’s and Idea’s India wireless EBITDA by around 8 percent and 11 percent (on 2QFY18 base), respectively,” it said in a report.

Further, accelerated ex-IUC ARPU down-trading on account of expanding the scope of unlimited bundled plans to non-4G handset owners is likely to exert further pressure.

ICICI Securities

ICICI Securities expects the quarter to be weak for Bharti Airtel and Idea Cellular. Further, accelerated ARPU downgrade (ex-IUC) on account of increasing proportion of bundled plans to further exert pressure, the brokerage said in its report.

However, with sectors transformation into three player market, out medium term outlook is positive, it said.

“Bharti Infratel too is likely to report subdued performance lead by tenancy exit of Rcom and Aircel. Jio is the primary source of growth for the tower industry,” the report added.

Edelweiss

Edelweiss expects revenues of Bharti Airtel’s India mobility business and Idea Cellular to decline 10.8 percent and 9.1 percent, respectively, QoQ.

“The sharp dip is attributable majorly to 57 percent cut in IUC charges and customers opting for lower‐ARPU longer‐duration recharge packages,” the brokerage said in a report.

Meanwhile, EBITDA margins are also likely to bear the brunt of IUC cut and revenue deceleration—estimate 30bps and 90bps dip in Bharti’s and Idea’s margins, respectively.

Among key monitorables commentary on ARPU trajectory, fresh equity infusion by Idea, timelines of Idea‐Vodafone merger and update on Bharti’s Africa business will be key monitorables.
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