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Telecom - Growth breaks due to Covid-19 crisis - ICICI Securities

Posted On: 2020-07-07 21:52:06

Mobile revenue growth to see a break with dip of 5% / 9.8% QoQ for Bharti Airtel (Bharti) and Vodafone Idea (VIL), respectively. This is due to temporary subs loss on labour migration, job losses and disconnection of multiple SIMs; and ARPU will be hurt from lower international roaming revenue, unavailability of recharges, lower gross adds etc. We see ARPUs dip by 4.3% / 6% QoQ for Bharti / VIL. However, low churn, more digital recharges and less ad spends will also help in reducing costs. Bharti will benefit from traction in its wired broadband and enterprise services; therefore, consolidated EBITDA dip will be marginal 1.7% QoQ, up 21% YoY. Bharti Infratel's performance will be steady, and may report rise in tenancies. Tata Communications' (TCom) EBITDA continues to grow healthy at 7.9% YoY benefited by work-from-home culture.

- ARPU to dip due to Covid-19 crisis. Bharti / VIL is likely to see a decline in subs due to 1) lower gross adds offset by low churn, and 2) adverse impact from migration and job losses. We estimate Bharti and VIL to see subs decline of 4mn / 8mn, respectively, in Q1FY21. ARPU impacted from non-availability of offline recharges, muted 4G net adds, negligible international roaming revenue and some temporary recharge aberration, is likely to dip 4.3% / 6% for Bharti / VIL respectively. However, low churn, more digital recharges and less ad spends will also help in reducing costs.

- Bharti Airtel's consolidated EBITDA likely to dip 1.7% QoQ to Rs101bn. Bharti's India revenue to fall 2.3% QoQ (+10.1% YoY) to Rs171bn mostly led by mobile segment (down 5% QoQ) and EBITDA to dip 3.7% QoQ to Rs72bn (EBITDA margin down 64bps QoQ to 42%). Bharti's Africa US$ revenue and EBITDA are likely to dip 2.0% QoQ to US$881mn and 2.6% QoQ to US$383mn. Consolidated revenue and EBITDA to dip 1.2% QoQ to Rs235bn and 1.7% QoQ to Rs101bn, respectively. Net loss seen at Rs6bn. Forex losses of Rs5bn factored in our estimates.

- VIL's EBITDA to dip 14.7% QoQ to Rs37bn. Revenue likely to fall 9.8% QoQ to Rs106bn on much steeper impact on ARPU and higher subs base slippage. We expect cost saving to help cushion EBITDA dip (adjusted for Rs4bn one-off in Q4FY20). We expect VIL to report net loss of Rs59bn with nil tax rebate.

- Bharti Infratel's tenancies to rise by 2,050 but rental/ tenant to dip 1% YoY to Rs42,185. Rental revenue to dip 1.7% YoY (down 1.3% QoQ) to Rs22.2bn on removal of equipment by tenants who have given exit notice. EBITDA is likely to dip 3.8% YoY to Rs18.2bn. We expect consolidated net profit to drop 15.7% YoY to Rs7.5bn. QoQ rise in EBITDA / PAT is due to higher cost in Q4FY20.

- Tata Communications' (TCom) EBITDA is likely to rise 7.9% YoY to Rs8.5bn (excluding real estate). We estimate GVS (global voice solutions) revenue to drop 2.0% QoQ and EBITDA margin at 6%. GDS (global data solutions) revenue is estimated to grow 4.5% QoQ on INR depreciation, higher data usage and traction in UCC segment (video conferencing); EBITDA margin to improve 10bps QoQ to 21.7%. We estimate net profit at Rs1.4mn.

Source: Equity Bulls

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