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Telecom: Q4FY18 Preview - ARPU pressure to continue

Service providers to see continued ARPU pressure: Indian telecom wireless players to report a soft quarter. 4QFY18 will see continued impact on ARPU due to downtrading among high ARPU customers and up trading isn’t enough to offset the impact. Additionally, shift to unlimited calling plans, is likely to push up voice traffic growth and thus drive up access charges. We expect sector to see sequential decline in both revenues and EBITDA. Additionally, cut in international termination charges (effective 1^st Feb 2018) will impact Revenues and EBITDA. On the other hands, we believe that capital intensity in the sector to continue as incumbents (particularly Bharti) roll-out 4G services aggressively to keep up with market shift towards LTE data.

Bharti Airtel is expected to report consolidated Rev/EBITDA/PAT of Rs195bn/Rs71bn/Rs0.3bn. Drag on the India wireless business is likely to continue due to international termination cut and price erosion. Despite strong subscriber addition for Bharti Airtel, we estimate India wireless revenues to drop by 5% QoQ to Rs146bn. Expect India wireless ARPUs to come in at Rs115. India wireless EBITDA to come in at Rs30.8bn, margin of 30.5% (3QFY18 :32.6%).The Africa business is expected to report stable quarter.

Idea Cellular: We expect the slightly higher impact on the wireless revenues, as their subscriber addition is expected to trail Bharti Airtel. Overall we estimate Idea to report Revenues/EBITDA of Rs61bn/Rs10bn, a decline of 6%/13% QoQ. This decline is led by sharp drop in ARPU to Rs104 (Rs114 in 3QFY18). This is likely to lead to a PAT loss Rs14bn.

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 5.6% QoQ. The revenue decline will be driven by exit of select players (RCOM, TTSL and Aircel). This is likely to drive increase in churn and overall gross adds for the quarter are unlikely to offset this drag. Given high operating leverage we estimate drop in rental revenue to flow to EBITDA and estimate an EBITDA decline of 7.5% QoQ. We estimate Rev/EBITDA/PAT of Rs35bn/Rs14bn/Rs6.7bn, growth of 0.6%/-6%/13% YoY.

Tata Communications: TCOM is likely to report a mixed with quarter, with weakness in voice but data services should grow. Overall we expect EBITDA margins to remain stable sequentially on a consolidated basis at 14.8%. While the traditional data business margins had surprised positively in 3QFY18, which should moderate to 29.5% in 4Q. However importantly, the growth services should see a reduction in losses. On a cons, basis, we expect TCOM to report Rev/EBITDA of Rs41bn/Rs6bn, +1.2%/0.9% QoQ. 

Headline will be weak, we would watch for internal metrics: While it is no surprise that price erosion will continue to impact revenues, we would focus data centric metrics. 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.

Key monitorables in 4QFY18 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.