Telecommunication operators may report a dip in net profit for the first quarter ended June 30 largely due to lower operational profitability and higher interest costs incurred on debt taken to acquire spectrum for third generation and broadband wireless access services.
However, these companies will be able to maintain revenues through increased minutes carried on their cellular networks, especially in a quarter which did not see a new round of tariff wars, analysts say,
According to estimates put out by four brokerage firms on the listed telecom firms, average sequential net profit for Bharti Airtel, Reliance Communications and Idea Cellular is likely to fall by 20 per cent for the quarter ended June. On a year on year basis, net profit decline is expected to be comparatively steeper at 34 per cent.
Revenues for the quarter are expected to be flat or only marginally higher. Mr Harit Shah, analyst with Karvy Stock Broking expects the wireless majors to report a 1.2 per cent revenue decline in Q1 on a year-on-year basis.
Edelweiss analysts Mr Ganesh Duvvuri, Ms Devyani Javeri and Mr Rohit Patni said in a research report: "We understand that the interest cost on debt that arose from the 3G and BWA licence payments will be capitalised until commercial operations are launched. For Bharti, interest costs will rise due to debt raised for the acquisition of Zain."
News reports have indicated that Bharti has secured debt of up to $8.5 billion from a clutch of lenders to fund the Zain deal. Again, Idea Cellular has been seeking to raise around $528 million by raising debt - domestic or overseas - to fund its 3G network deployment.
During the quarter gone by, RCom de-merged its tower business in a bid to bring down its overall debt to Rs 15,000 crore.
From a tariff standpoint, the environment has been relatively stable with no big ticket announcements on further price cuts. But some of the new entrants such as Videocon and Uninor continued to eat into the market share of the incumbents on the basis of their aggressive tariff plans launched earlier this year.
However, falling tariffs have ensured an increase in the minutes of telephony usage. "We believe increased minutes of usage will support and subsidise the impact of falling ARPUs in the coming quarters, resulting in flat growth in the mobile telephony space," Mr Vaibhav Agarwal and Ms Vibha Salvi, analysts with Angel Securities said in a report.
Another report authored by Mr Amit Ahire of Ambit Capital said the total number of minutes on a carrier's network is expected to increase by between three per cent and eight per cent for the three top wireless operators.
Company wise, RCom is expected to take the maximum hit on quarter-on-quarter profitability, with an average estimated dip of 40 per cent. "Pre-minority interest net profit is expected to decline by 82 per cent year on year and 72 per cent quarter on quarter, led mainly by assumptions of no treasury gains," Mr Shobhit Khare, analyst of Motilal Oswal Securities said.
Bharti Airtel's net profit is expected to be down by around five per cent. Analysts expect continued decline in revenue per minute, though, slower than in the earlier quarter, as circle-level lower tariff schemes continue. "Demand elasticity is expected to play-out, as reflected in higher minutes of usage," the Edelweiss report said. Idea Cellular may take a 16 per cent quarter on quarter hit on its bottom line.
The quarter gone by was one of the more eventful ones in the Indian telecom sector especially after TRAI released recommendations pertaining to charges on excess spectrum - re-farming of the 900Mhz band frequency, changes in the spectrum usage charges and licence fees paid by the operators. Moreover, the much-delayed 3G and BWA auctions finally took place, following which Reliance Industries announced its re-entry into the Indian telecom space by acquiring pan-India BWA winner Infotel.
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