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Result Preview – Telecom sector – Pressure from Jio to Dampen Earnings

July 19, 2018

The stocks under our coverage are expected to report a revenue de-growth of 11.7% yoy. This revenue de-growth would be strongest for Idea Cellular (down 27.1% yoy), which is likely to continue to see significant erosion of ARPU. As per the latest subscriber data from Trai, the number of wireless subscribers grew by 1.4% mom in April 2018. The fastest growing subscriber growth for the month of April 2018 came from Jio (5.2% mom), followed by Idea (2.6% mom) and Bharti (1.5% mom). However, incumbent operators stand to benefit from the exit of Aircel.

Jiophone drives strong rural additions for Q1FY19

In the Reliance Industries AGM, it was announced that Jio’s subscriber base had recently crossed 215mn. This implies a subscriber growth of ~15% qoq in Q1FY19. This growth is likely to be driven by strong rural penetration enabled by the launch of the Jiophone. At a low price point of Rs1,500 per handset, Jiophone has been crucial in enabling rural users to get cheap access to the internet.

Subscriber growth in Q1FY19E

(in millions)	Q4FY18	Q1FY19E	qoq growth (%)
Bharti Airtel	304.2	317.9	4.5
Idea Cellular	211.2	227.2	7.8
Reliance Jio	186.5	215	15.3
Vodafone India	222.7	224.1	0.6
Others	258.8	257.9	-0.4
Total	1,183.4	1,242.6	5.0

Jio to keep telecom margins under pressure

EBIDTA margins for the universe are expected to shrink by 292bps yoy in Q1FY19 as the pressure from Jio would lead to lower margins for all incumbents. We expect EBITDA of Idea to decline by 43.8% qoq due to this reason. Bharti Airtel would see a milder decline of 5.6% qoq in EBITDA owing to the ramp-up of the Africa business. EBITDA for the universe is expected to decline by 9.1% qoq. Thus, PAT for the telecom universe is expected at a loss of Rs1,241cr.

We have negative view on Idea Cellular owing to its high debt levels and significant erosion in ARPU.

We have positive stance on Bharti Airtel and Bharti Infratel

Bharti Airtel

	Q1FY19E	Q1FY18	YoY	Q4FY18	QoQ
Sales	19,958.0	21,958.0	-9.1	19,634.3	1.6
EBITDA	6,696.1	7,758.4	-13.7	6,929.9	-3.4
EBITDA margin (%)	33.6	35.3	-178	35.3	-174
PAT	-223.4	407.5	-154.8	407.6	-154.8

The Indian wireless business is likely to see softening ARPUs due to pressure from Jio and consolidation of Telenor. Top-line for the Africa wireless business would benefit from a weakening rupee, supporting a 1.6% qoq increase in revenue for 1QFY19E.

Bharti Infratel

	Q1FY19E	Q1FY18	YoY	Q4FY18	QoQ
Sales	3,577.9	3,523.9	1.5	3,662.2	-2.3
EBITDA	1,503.4	1,575.0	-4.5	1,592.3	-5.6
EBITDA margin (%)	42.0	44.7	-268	43.5	-146
PAT	596.6	663.9	-10.1	656.0	-9.1

Revenue and earnings to shrink 2.3% and 9.1% qoq in 1QFY19E mainly owing to loss of tenancies from Telenor. Tenancy gains to remain muted due to the impact of Jio.

Idea Cellular

	Q1FY19E	Q1FY18	YoY	Q4FY18	QoQ
Sales	5,957.0	8,166.5	-27.1	6,137.3	-2.9
EBITDA	812.9	1,875.4	-56.7	1,447.1	-43.8
EBITDA margin (%)	13.6	23.0	-932	23.6	-993
PAT	-1,570.8	-814.9	92.8	-962.2	63.3

Softening ARPU to continue to impact revenue (down 2.9% qoq) and earnings (expected loss of Rs1,571cr in 1QFY19E), albeit at a slower pace. Revenue to also be impacted by sale of tower business to ATC.

Tata Communications

	Q1FY19E	Q1FY18	YoY	Q4FY18	QoQ
Sales	4,011.0	4,310.0	-6.9	4,008.6	0.1
EBITDA	553.1	558.6	-1.0	555.5	-0.4
EBITDA margin (%)	13.8	13.0	83	13.9	-7
PAT	-43.4	32.2	-234.8	41.1	-205.6

Losses from Growth and Innovation services would remain high in 1QFY19E, with the Voice segment continuing its decline. However, growth in traditional services would compensate for these negatives and revenue and EBITDA for 1QFY19E is likely to be flat qoq. – IIFL

Communications Today

Result Preview – Telecom sector – Pressure from Jio to Dampen Earnings

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Result Preview – Telecom sector – Pressure from Jio to Dampen Earnings

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