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Telecom Q3FY19 preview - Earnings pressure persists

Earnings pressure to continue in telcos; Sterlite to deliver strong earnings growth: We expect the QoQ decline in wireless revenue to reduce marginally, due to new steps taken by telecom companies, which  includes compulsory minimum recharge of INR 35/month. Full impact of tenancy exits by Vodafone-Idea to affect Bharti Infratel’s (BHIN) revenues. Q3 is a seasonally weak quarter for Tata Communications (TCOM) in terms of revenues. Sterlite, however, is expected to deliver strong earnings growth on full impact of Metallurgica acquisition and high product volumes.

Bharti Airtel: At a consolidated level, we expect Bharti to report revenues and EBITDA of Rs205bn (0.4% qoq) and Rs64bn (+1.3% qoq), respectively. We expect India wireless revenues to decline 1.2%, largely due to lower ICR revenues. Revenue decline in post-paid segment is likely to be offset by uptick in low-end prepaid, due to the minimum recharge plan. Decline in subscriber base will help increase ARPU from Rs101 in Q2FY19 to Rs103 in Q3FY19E. We expect flat revenue and EBITDA for Africa wireless; Management commentary on Africa asset listing will be the key focus.

Vodafone-Idea: Idea has been trailing in data subscriber addition and incrementally losing data subs market share and this will be one of the key metrics to track. We expect 2.0% QoQ revenue decline (on proforma basis) with ARPU estimated to improve 2.3% QoQ (Q2FY19 ARPU: Rs88, Q3FY19E ARPU Rs90), given the loss of subscribers due to the minimum recharge plan. EBITDA margin should improve 58bps due to merger synergies in this quarter. Management commentary on synergy benefits, progress in funding plans will be the key focus.

Bharti Infratel: As announced by Infratel, the quarter will see the exit of Vodafone- Idea .Tenancy exits will translate into an 8% QoQ rental revenue decline. We expect the usual seasonal strength in energy spreads to continue (+3.5% QoQ) and estimate revenue/EBITDA to decline 3% QoQ and 7% QoQ, respectively.

TCOM: Q3 is a seasonally weak quarter for TCOM on the revenue front. Voice segment will likely see a sharp decline in EBITDA sequentially. We expect modest improvement in TCTSL EBITDA and another subdued quarter for TCPSL. On the growth services front, upfront costs on a couple of large deals could likely deteriorate QoQ EBITDA. We estimate consolidated revenue/EBITDA of Rs39.7bn/Rs6.1bn, -2.2%/-1.8% QoQ, respectively. Overall, consolidated EBITDA margin could likely be flat at 15.5% QoQ.

Sterlite Technologies: We expect strong revenue momentum to continue and estimate Rev/EBITDA/PAT of R11bn/2.7bn/Rs1.3 bn, a growth of 37%/38%/45% YoY. This quarter will have a full impact of Metalurgica acquisition and strong product volumes. EBITDA margin will increase by  20 bps due to change in product mix.

Key monitorables in 3QFY19E results

• Bharti Airtel Management commentary on Africa assets listing. 
• Update on integration costs & synergy of Idea Cellular – Vodafone merger.
• Commentary on impact of down trading and minimum recharge plan.
• Infratel commentary on tenancy exits.

·       Sterlite Tech management update on optical fiber pricing.