News From Telecom World

Costs, weak rupee may weigh down India telcos

Posted on: October 28, 2008

Arpu expected to continue decline as operators expand into low income rural areas in bid to win more users.

Indian telecommunications service providers are likely to post strong revenue growth in the fiscal second quarter, getting a boost from robust subscriber additions.

But higher costs and a weak rupee may weigh down net profit growth.

Average revenue per user, a key operational indicator, is likely to continue its downward trend in the July-September period as companies – looking to add subscribers – expand into lower income generating rural areas, say analysts.

The telecommunications industry is adding more than 8 million subscribers every month in India – the highest pace in the world – helped by low tariffs and rising income levels.

Companies to watch:

Bharti Airtel Ltd. – Reporting Oct. 31

Market Expectations: Eleven analysts polled by Dow Jones Newswires on average expect net profit to grow to INR21.32 billion, up 32% on year from INR16.14 billion, on revenue of INR90.50 billion, up 43% from INR63.37 billion a year earlier.

India’s largest telecommunications company by subscribers posted a net profit of INR20.25 billion on revenue of INR84.83 billion in the first quarter.

Key Issues: Mumbai-based brokerage Motilal Oswal expects derivative losses due to foreign exchange fluctuation worth INR1.5 billion in the second quarter, limiting net profit growth.

Earnings before interest, tax, depreciation & amortization, or Ebitda, margins should be flat on quarter, due to higher costs on network operations, customer acquisition and brand promotion, said analysts.

Motilal Oswal expects ARPU to fall about 3.7% on quarter to INR337.

Reliance Communications Ltd. – Reporting Oct. 31

Market Expectations: The average forecast of 11 analysts polled by Dow Jones Newswires has the company posting a net profit of INR14.32 billion, up 9.7% on year from INR13.05 billion. Revenue is likely to be up 24% to INR56.94 billion compared with INR45.79 billion a year earlier.

Quarterly net profit, however, will likely fall below INR15.12 billion in the first quarter, with revenue up sequentially at INR53.22 billion.

Key Issues: After a worse than expected decline in ARPU in the first quarter, that parameter will again be the focus, while comments on minutes of usage and revenue per minute will also be tracked. Motilal Oswal expects an ARPU fall of about 3% on quarter to INR273.

While revenue is likely to be helped by the acquisition of U.K.-based virtual network operator Vanco Group Ltd. in May, net profit growth will likely be muted by the rupee’s depreciation and higher costs, including finance costs.

Motilal Oswal expects finance costs of INR1.40 million, compared with a gain of INR2.34 billion in the previous quarter.

The Ebitda margin is likely to be flat on quarter as a margin improvement in the global business is likely to be offset by higher operating costs, said analysts.

Source: Total Telecom

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