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Telecom: Q1FY19 result preview - Cost pressures to weigh on EBITDA

Cost pressures to weigh on EBITDA performance: Indian telecom wireless players to report another soft quarter. 1QFY19 will see impact on ARPU but pace of decline could moderate. However, accelerated network investments and rising in diesel prices will lead to cost pressures. As a result, we expect EBITDA to de-grow -11.3% QoQ for the service providers. In our view, performance on data revenues and data subscribers will be the key monitorable and overall we expect pace of revenue decline for incumbents to moderate. We have begun to see improved headline subscriber addition for the incumbents, and would like to see if data subs addition is accelerating and data revenues begin to stabilise or even grow.

Bharti Airtel: Bharti Airtel is expected to report consolidated Rev/EBITDA/PAT of RS.197bn/Rs67bn/-Rs4.1bn. Uninor acquisition will be incorporated for 1.5 months in Q1 and we estimate it to add Rs1.5bn to topline. However this acquisition is expected to EBITDA negative to begin with and accelerated network expansion will weigh on costs. We expect India wireless EBITDA to come in at Rs25.9bn vs. Rs29.4bn in Q4. The Africa business is expected to report stable quarter.

Idea Cellular: 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. Financial performance for the quarter will be weak given cost pressures and believe that EBITDA will not be able to cover their interest costs. Financials for the company remain under stress and thus any delay in closure of the merger will continue to hurt performance. Overall we estimate Idea to report Revenues/EBITDA of Rs59bn/Rs8.09bn, a decline of -3.1%/-44% QoQ. This is likely to lead to a PAT loss –Rs15.8bn.

Bharti Infratel: The weak metrics of 4QFY18 will translate into P&L performance in this quarter. The tenancy exits will translate into a rental revenue decline of 4.2% 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 Rs20.bn/Rs14.9bn/Rs.6.1bn, growth of -7.3%/-5.3%/-7.6% YoY.

Tata Communications: TCOM is likely to report another weak quarter, with weakness in voice and modest growth in data services. On a cons, basis, we expect TCOM to report Rev/EBITDA of Rs40.2bn/Rs5.6bn, +0.5%/1.4% QoQ. A flat quarter QoQ is disappointing considering INR has depreciated 4% QoQ against the USD. Overall we expect EBITDA margins to remain stable sequentially on a consolidated basis at 14%.

Sterlite Technologies: We expect strong revenue momentum to continue and estimate Rev/EBITDA/PAT of Rs9.09bn/Rs2.2bn/Rs1.0bn, a growth of 22%/44%/80% YoY. The fibre pricing environment remains firm and this coupled with improved capacity utilisation should lead to 24.9% EBITDA margins, up 377bps YoY.  

Key monitorables in 1QFY19E results

• Capex guidance from Bharti Airtel and Idea Cellular.
• Update on timelines and progress 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.