Published on 6/08/2019 1:42:10 PM | Source: Emkay Global Financial Services Ltd

Telecom Sector Update By Emkay Global

Posted in Broking Firm Views - Sector Report| #Telecom Sector #Emkay Global Financial Services Ltd. #Sector Report

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Uneventful quarter

* After a quarter that saw a rise in wireless revenues, both Bharti and VIL should see a moderation due to the stabilization of minimum recharge plans. We continue to highlight that competitive intensity remains high, restricting revenue growth in a weak subscriberaddition scenario. Only data subscriber additions can improve revenue mix in the interim, in our view.

* Bharti is expected to register 1.8% qoq growth in wireless revenue, while for VIL we are estimating a marginal deceleration (-1% qoq). The mix change with data subscriber additions and subscriber loss should aid ARPU increase. Strong subscriber additions for JIO are expected to continue, along with market share gains.

* ARPUs for Bharti and VIL are estimated to increase by 3% and 8% qoq, respectively. The differential in ARPU increase is an outcome of subscriber losses and marginal benefit accruing from mix change. Data volume growth is expected to remain steady at 8-11% qoq for both Bharti and VIL.

* Wireless EBITDA for Bharti is expected to marginally decline due to one-off cost reversals in the last quarter. Africa should continue to record revenue growth (+1.7% qoq). VIL, on the other hand, should see a 7% qoq increase in EBITDA, driven by sustained cost synergies. SG&A expenses should remain under control, supported by a lack of subscriber additions for both Bharti and VIL. Merger-related cost saving will be a key monitorable for VIL as it is expected to support EBITDA.

* The impact of debt reduction and the subsequent decline in finance charges should start reflecting from Q1FY20, while major reduction would be visible from the next quarter.

* Bharti Infratel: Another uninspiring quarter with muted KPI performance. We estimate consolidated tower additions of 173 and a net tenancy increase of 690 vs. a reduction of 1,725 in Q4FY19, resulting in a tenancy ratio of 1.88x. Continued exits from VIL could pose risks to tenancy additions. Energy reimbursements should see an increase due to seasonality. Energy margins are expected to be 5.6% vs. 3.7% a year ago. Rental revenues should see the impact of the exits in the previous quarter. Rental/month/tower should also see a moderation sequentially due to the exits in the last quarter.

* Tata Communications: Data revenues are expected to grow 17% yoy, driven by strong and sustained increase in growth services and an uptick in the traditional business. Healthy revenue growth should support the margin expansion in GDS. On the other hand, the voice business should continue to decelerate. Margins of the voice segment are expected to return to their normalized levels of 6-7% after three quarters of rebound. Overall, EBITDA is estimated to grow 19% yoy to Rs7bn, with a 137bps expansion in margin to 16.3%.

* We currently have a SELL rating on Bharti Airtel and Bharti Infratel and VIL, while we maintain HOLD on Tata Communications. We maintain our Underweight call on the sector in EAP.


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