Changing subscriber base to shape revenue growth for telecom firms

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The December quarter is not likely to throw up any major surprise for telecom companies.

Analysts do expect positive commentary on how the two older majors, Bharti Airtel and Vodafone Idea (VIL) would be proceeding with plans for a higher minimum in average revenue per user (ARPU, got by dividing total revenue by the total of subscribers). Also, on their plans for fund raising and cost synergy.

Analysts have assumed a slower sequential (quarter on quarter) decline in wireless revenue due to the exit of low ARPU subscribers (from recent schemes in this regard). However, they expect the host of new measures to improve ARPU to be showing some results for the older two. If not for Reliance Jio, their formidable challenger, which should continue to see revenue benefit from subscriber addition.

Analysts at Kotak Institutional Equities expect Airtel to report revenue and Ebitda (earnings before interest, taxes, depreciation and amortisation) of Rs 20,450 crore (no quarter on quarter or QoQ change) and Rs 6,200 crore (down 0.8 per cent from the September quarter), respectively. Also expected is a loss of Rs 990 crore in profit after tax. 

“On the India wireless front, we expect a modest one per cent QoQ and 5.6 per cent year-on-year decline in revenue to Rs 10,150 crore,” wrote Rohit Chordia, analyst at Kotak. The expected sequential dip in revenue is largely on account of less from intra-circle roaming.

Airtel is expected to reduce net debt by around Rs 6,000 crore from the earlier quarter (existing net debt of Rs 1.15 trillion), on account of $1.25 billion (around Rs 8,800 crore) from the African business stake sale. 

VIL’s net debt after the September quarter was around Rs 1.2 trillion. Analysts have factored in a 10-million subscriber base erosion for Airtel and 15-million for VIL in the December quarter.

“We expect Airtel India’s wireless margin to contract by around 100 basis points  QoQ, led by decline in revenue and marginal increase in cost,” wrote Shashi Bhushan and Santosh Sinha of Axis Capital. Merrill Lynch analysts expect a 1.5 per cent decline in Airtel’s India wireless revenue, due to the impact of roaming and interconnect charges. 

Last month, Airtel formed a committee of directors to explore options for fund raising to strengthen its capital structure and balance sheet. The market was abuzz on these plans (estimated at around Rs 15,000 crore at least), as the telco sought to reduce debt, boost cash flow and meet capital expenditure. Commentary will be expected on specifics of the fund raising and details of the user base it is losing. 

VIL is expected to report revenue decline of 1.5-3 per cent, with ARPU improvement of almost 1.4 per cent, say most analysts.

It has announced equity fund raising of Rs 25,000 crore for early 2019. Airtel has an Initial Public Offer plan for its African operation, which could lead to proceeds of over Rs 6,000 crore. Airtel and Vodafone Idea could also get a combined Rs 25,000 crore from sale of their stakes in the merged tower company after the combination of Bharti Infratel and Indus Towers. Investors will be looking for more clarity on these points.

“For VIL, comparable revenues are estimated to dip 2.7 per cent QoQ, on higher subscriber decline. We expect synergy benefit of Rs 450 crore on account of a lower number of towers and some saving from remaining costs, with a net loss of Rs 4,000 crore,” wrote Sanjesh Jain, research analyst at ICICI Securities. VIL’s synergy benefits (from the merger of Vodafone with Idea) will include less network cost and subscriber acquisition cost.


For VIL, in addition to savings from tenancy exits, some brokerages have also factored in an extra Rs 2,000 crore of annualised cost saving in the quarter. The management is expected to remain focused on cost management in the initial quarters after a merger.

As such, VIL’s capital expenditure remains significantly less than peers. This was Rs 3,300 crore in the September quarter, compared to Rs 7,680 crore by Airtel. Jio’s was Rs 16,000 crore.

An estimated 20-30 million dip in low Arpu subscribers will result in up to a 3 per cent revenue erosion for older majors. The movement of many of these to Jio should mean a revenue growth of almost 12 per cent to Rs 10,300 crore, say analysts. 


This subscriber addition will negatively weigh on Jio’s Arpu by two to three per cent at least. Morgan Stanley has factored in 13 per cent QoQ revenue growth for Jio, while its operating expenditure is expected to increase as the network rollout continues, and 11 per cent sequential  growth in Ebitda.



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