IUC cut, Jio rivalry may bruise Airtel, Idea in Q3

Listed telecom operators Bharti Airtel and Idea Cellular are likely to report a sharp sequential fall in operating income and wireless revenue in the third quarter, stung by cut in interconnect usage charges and continued efforts to match Reliance Jio Infocomm’s aggressive tariffs, analysts said.

The duo’s earnings in the three months ended December may be “impacted by IUC cuts,” which will lower operating income of Bharti’s India wireless business and Idea’s by 6% and 8% on-quarter,” brokerage Credit Suisse said.

Bharti Airtel, Vodafone India and Idea Cellular will be the biggest revenue losers following the IUC reduction on October 1, 2017.

IUC decrease would “negatively impact” Bharti and Idea’s mobile revenue by 7% and 10% on quarter, respectively, ICICI Securities said, adding that it will likely be exacerbated by lower average revenue per user (ARPU) with growth in “adoption of bundled offers” of data and unlimited voice. The brokerage expects Airtel’s monthly ARPU, a key performance metric, to decline 12.4% on-quarter to ₹127 and predicts Idea’s will slip almost 12% sequentially to ₹116.

Telcos that made “most aggressive bundled plans” available to all “would have seen ARPU-dilutive accelerated adoption” in December quarter, Kotak Securitiessaid. Such unlimited plans, it said, were earlier restricted to 4G handsets.

Airtel and Idea are expected to report weak earnings numbers, analysts at IDFC said, although negative impact on Idea’s wireless revenue would be more pronounced as it is likely to trail the market leader in subscriber additions.

Airtel may report an almost 10% on-year decline in net profit from ₹504 crore last year, according to a poll of five analysts. The poll estimates the Sunil Mittal-led company’s profit will rise 33% from ₹343 crore in the three months ended September 2017.

According to the poll, Kumar Mangalam Birla-led Idea’s net loss may widen to about ₹1,314 crore from ₹383.9 crore a year earlier.

It would be the fifth successive quarterly loss for Idea, which is merging with Vodafone India to create the country’s biggest phone company.

“Our estimates show operating cash-flow generation cannot meet its interest servicing, and rising capex would further put pressure on an already stretched balance sheet,” ICICI Securities said of Idea in a note seen by ET.

Airtel’s consolidated revenue in the third quarter is estimated to fall over 11% from ₹23,336 crore a year earlier, while Idea’s revenue may plunge about 24% from ₹8,662.72 crore last year.

Analysts are awaiting the closure of the Idea-Vodafone merger and expect the resultant synergy will aid the merged entity amid the raging price war with Jio.

Credit Suisse said it would be interesting to see the impact of Idea’s tariff aggression towards the close of the September quarter and the management’s future strategy based on its experience.

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