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Telecom: 2QFY19 preview - no respite - Kotak

Posted On: 2018-10-03 10:00:46

2QFY19 preview - no respite. We expect another quarter of weak earnings prints for the wireless names as well as BHIN as (a) postpaid re-pricing, continued prepaid ARPU down-trading, seasonality and initial impact of JioPhone monsoon hungama result in a higher sequential revenue decline for the wireless names, and (b) loss of Vodafone Idea tenancies hits BHIN's financials. TCOM is likely to report a slightly better quarter. We remain cautious on IDEA and BHIN and constructive on BHARTI and TCOM.

Wireless revenue weakness continues for the incumbents

Four factors driving higher sequential revenue pressure for the incumbents:

- Accelerated postpaid re-pricing as the incumbents look to protect their postpaid subs base from switcing to R-Jio.

- Continued prepaid ARPU down-trading; we are perhaps getting close to the end of the downward ARPU shift in this segment (prepaid mobile broadband subs).

- Seasonality - the usual 2Q weakness for the incumbents; we note that Jio's bundled pricing approach protects them from this aspect.

-Initial impact of JioPhone monsoon hungama exchange offer; our channel checks suggest that Jio has seen a higher degree of success with this plan than it did with the initial JioPhone plan. More important, given that this plan involves the exchange of the customer's old feature-phone for JioPhone, it also means that the spend on the incumbent SIM goes straight down to zero. Impact on the incumbents will likely increase from 3Q onwards as the impact in 2Q was limited to less than half a quarter.

We expect all these factors combined to drive a sharper sequential pressure on incumbent revenues. For Bharti, we bake in 3% qoq decline in reported India wireless revenues (3.5% organic). For Idea, we expect a 5.7% like-on-like (Vodafone+Idea, full-quarter proforma) qoq decline in wireless revenues. On a reported (Idea + 1 month of Vodafone for 2Q) basis, we expect Idea to report a 28% qoq growth in revenues to Rs76 bn. We expect (a) Bharti to report a 16% qoq and 45% yoy decline in India wireless EBITDA and (b) Idea to report a 6% qoq EBITDA growth on a reported basis; on a like-on-like basis, we estimate a 34% qoq and 71% yoy EBITDA decline. We note that this is after baking in some initial merger cost synergy gains. Exhibits 1 depicts our estimates for Bharti while Exhibits 2 and 3 depict our expectations for Idea standalone (ex-Vodafone) and Idea with Vodafone (for 1 month), respectively.

Vodafone-Idea exits to hurt BHIN financials, TCOM likely to report modest improvement

BHIN's financials are likely to look weak on account of the one-month impact of the Vodafone-Idea tenancy exits even as we believe the company has seen a slight pickup in gross tenancy additions primarily from R-Jio. We expect a 4.5% qoq and 10.1% yoy decline in EBITDA and around an 8% qoq as well as yoy decline in recurring PAT for BHIN. We bake in a net EOP-to-EOP tenancy decline of 24,695 driven by Voda-Idea merger impact of 27,447 as announced by the company. We do note that BHIN's reported rental/tenant could see a spike driven by the inconsistency between the numerator (revenues) and denominator (tenancies) of the equation.

For TCOM, we expect a modest 3% sequential improvement in EBITDA led by a slight improvement in the revenue growth trajectory in the traditional data business and further reduction in EBITDA losses in the growth services segment.

Shares of BHARTI INFRATEL LTD. was last trading in BSE at Rs.265.05 as compared to the previous close of Rs. 262.1. The total number of shares traded during the day was 55611 in over 921 trades.

The stock hit an intraday high of Rs. 271.45 and intraday low of 260.95. The net turnover during the day was Rs. 14847822.

Source: Equity Bulls

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