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Telecom: 2QFY19E Preview – Seasonality will add to earnings pressures

Down trading and seasonality to weigh on Rev/EBITDA performance: Indian telecom wireless players to report another soft quarter. The impact of Jio will be visible in the down trading within the post-paid subscriber base. This coupled with weak seasonality, rising fuel costs and site rollouts will weigh on EBITDA performance for the wireless operators. As a result, we expect EBITDA to de-grow 8%-15% QoQ for the service providers. In our view, performance on data revenues and data subscribers will be the key monitorable.

Bharti Airtel: Bharti Airtel is expected to report consolidated Rev/EBITDA/PAT of Rs199 bn/Rs65bn/-Rs6.5bn. Post-paid down trading will weigh on ARPUs which we expect to come in at Rs102. We expect India wireless EBITDA to come in at Rs23.3bn vs. Rs27.6bn in Q1FY19. The Africa business is expected to report stable quarter.

Idea Cellular: First quarter of pro-forma financials likel: Idea has been trailing in data subscriber addition and incrementally losing data sub market share and this will be one of the key metrics to track. Besides we expect 1 month of pro-forma performance of Vodafone-Idea and we estimate a pro-forma Rev/EBITDA/PAT of Rs76bn/Rs7.1bn/-Rs-27bn for the quarters. Financials for the company remain under stress and we expect more clarity on upfront integration costs. At Idea consolidated (ex- Vodafone) we expect Revenues/EBITDA of R54bn/Rs4.1bn, a decline of -6.7%/-37.5% QoQ. This is likely to lead to a PAT loss –Rs19bn.

Bharti Infratel: As announced by Infratel, the quarter will see the exit of Vodafone- Idea tenancies (on end of period basis). The tenancy exits will translate into a rental revenue decline of 6% QoQ. Increase in diesel prices and higher energy revenues will offset some of the impact. Overall gross adds for the quarter is the key monitorable. We estimate Rev/EBITDA/PAT of Rs36.1.bn/Rs14.3bn/Rs.6.3bn, growth of -1.5%/-5.3%/-0.1% YoY.

Tata Communications: TCOM is likely to report slightly better quarter, with weakness in voice and modest growth in data services and helped by INR depreciation. On a cons, basis, we expect TCOM to report Rev/EBITDA of Rs40.3bn/Rs5.8bn, +3.1%/5.3% QoQ. Overall we expect EBITDA margins to come in at 14.5% , +31bps sequentially on a consolidated basis.

Sterlite Technologies: We expect strong revenue momentum to continue and estimate Rev/EBITDA/PAT of Rs10bn/Rs2.4bn/Rs1.3bn, a growth of 14%/0.5%/6% YoY. The fibre pricing environment remains firm and this coupled with improved capacity utilisation should lead to 24.6% EBITDA margins, up 273bps YoY.  

Key monitorables in 2QFY19E results

• Capex guidance from Bharti Airtel and Idea Cellular.
• Update on integration costs & synergy of Idea Cellular – Vodafone merger.
• Commentary on impact of down trading and bundling penetration.
• TCOM’s commentary on the turnaround in data margins and the TTSL enterprise business buyout.