The investors are focused on the profitability of the telecom companies as India Inc heads into the September-quarter earnings. Experts are hopeful that the government’s intervention will uplift their cash flows in the next couple of years; these measures may not have any meaningful impact on the intrinsic value of the stocks. Analysts maintain a ‘buy’ rating on Bharti Airtel and Reliance Industries and a ‘neutral’ rating on Vodafone India and Bharti Infratel. India's mobile revenues for Bharti Airtel and Vodafone Idea could fall due to the weak seasonality, although consolidation and the switch by an increasing proportion of customers to bundled plans could minimize the seasonality impact on BhartiAirtel.
Credit Suisse in its report said that mobile pricing came under considerable pressure, with Reliance Jio using it as a key tool to gain market share. “Given that it is still short of its stated objective (50%
share), we expect no major improvement in pricing over the next 18 months,” the Credit Suisse report said. It added that revenue and profitability at Bharti Airtel and Vodafone Idea have been suffering due to the cut-throat completion. With Jio trying to gain further market share this trend is expected to continue for the next two years.
Swiss brokerage house UBS said that the Telecom Regulatory Authority of India’s (TRAI) review of the inter-connection usage charge (IUC) deadline raised the expectation that the government could take other measures to support the sector to ensure India remained a three-player market. “What else can the government do? Interestingly, the TRAI’s announcement to revisit the deadline for zero IUC has restarted the market debate on other potential relief measures for the sector,” said UBS.
According to USB measures such as a two-three moratorium on spectrum payments and other government levies against GST, the input tax credit could boost the influx of cash in the first couple of years. It added that measures such as an increase in spectrum payment duration from 16 years to 18 years and reduction in USO (universal service obligation) Fund from 5% to 3% of revenues could have a meaningful impact on valuation.
Bank of America Merrill Lynch (BoFAML) maintained that it expects a seasonal slump for Bharti and Vodafone while Jio expected to be partly shielded. “We expect Bharti and Vodafone Idea to show QoQ revenue decline, led by normal seasonality coupled with the impact from floods in a few states,” it said. As most of Jio’s subscribers are on unlimited plans it does not expect Jio to show any decline.