Revenues for Q1FY19 saw a significant pressure as down trading continued to shrink ARPUs during the quarter. EBITDA and EBITDA margins fell 10% qoq and 329bps qoq, respectively, as a result of lower margins for telecom operators (Idea Cellular in particular). We expect that this pressure is unlikely to let up any time soon.
Reliance Jio has recently launched a new Jiophone and has made impressive inroads into the rural market. PAT for the telecom universe saw losses expand from Rs 276 cr in Q4FY18 to Rs 690 cr in Q1FY19.
We have a negative view on Idea Cellular owing to its high debt levels and significant erosion in ARPU.
On the other hand, we have a positive stance on Bharti Airtel and Bharti Infratel. Bharti Airtel’s Africa business is showing good traction and should support earnings in the near term. Bharti Infratel may see short-term headwinds due to industry consolidation, however, a strong Pan-India network should help the company keep earnings growth steady.
|EBITDA margin (%)||34.0||35.6||-156||35.8||-183|
The domestic mobile segment saw ARPUs soften 8.8% qoq due to downtrading as well as onboarding of Telenor subscribers. Its Africa business posted strong growth with a 13.9% yoy rise in user base and a 41.7% yoy rise in EBITDA. The management sees growth opportunities as users migrate towards smartphones, increasing data usage and allowing for ARPUs to stabilize as users uptrade. The potential IPO listing of the Africa business would be a positive trigger.
|EBITDA margin (%)||41.4||44.7||-330||43.5||-208|
The company mildly beat the estimates for Q1FY19. However, operational performance degraded as co-locations fell 4,818 qoq. With this, the average sharing factor fell to 2.22x in Q1FY19 against 2.3x in Q4FY18 and 2.36x in Q1FY18. Co-locations are expected to continue to fall over the next few quarters as the Idea-Vodafone merger would reduce tenancies going forward.
|EBITDA margin (%)||11.2||23.0||-1177||23.6||-1238|
Idea Cellular missed the estimates as revenue and EBITDA shrunk sharply after ARPU fell ~5% yoy to Rs 100 per user. The management stated that part of this reduction in ARPU was due to new limited usage plans which were aggressively priced. The company also sold its tower business at a profit of Rs 3,365 cr. However, the sale of the tower business is expected to lead to lower margins going forward. We expect that while the merger would create operational synergies, but ARPU would remain under pressure.
|EBITDA margin (%)||14.2||13.0||124||13.9||34|
Growth in data segment helped offset the decline seen in voice solutions. Data services contributed 73.8% of the overall revenues in Q1FY19, against 64.4% in Q1FY18. Consolidated revenues fell due to lower volume and price compression in the voice segment. CapEx for Q1FY19 stood at $72.3mn (up 39.8% qoq). This rise was due to an expansion of the Indian access network. Growth segments such as data are likely to drive growth going forward, while traditional segments like voice scale down. – India Infoline