The hard times persist for the incumbent telcos and their second quarter working results will reflect this, investment broking house Goldman Sachs has forecast. The reasons for their weak showing this time, however, is different, as they were faced with a higher tax under GST, a seasonally weak second quarter and falling average revenue per user.
The first quarter results of the top three telcom companies – Airtel, Vodafone and Idea-- were hit hard by Reliance Jio's free voice and cheap and unlimited data plans.
Bharti Airtel's net profit in the first quarter of 2017-18 crashed 75 per cent year-on-year — the steepest fall in the last one year— to Rs 367 crore against Rs 1,462 crore in the same period in 2016-17. Idea Cellular posted a higher net loss of Rs 816 crore in Q1 against a net profit of Rs 220.4 crore a year earlier, and a loss of Rs 325.6 crore in the previous three-month period.
" After a stable Q1, we expect trends to worsen in Q2 due to implementation of goods & services tax (GST), a seasonally weak second quarter and to some extent continued ARPU (average revenue per user) down-trading. GST was implemented in India from July 1, with the tax rate for telecom service providers at 18 per cent as against 15 per cent under the previous service tax regime", it said.
Given the elevated competitive intensity, telcos have not passed on this tax hike to their prepaid subscribers, which form about 80 per cent of their revenue base. This will likely result in a 2.5 per cent revenue hit for the companies in Q2, said the investment house. In addition, the second quarter has historically seen a 2 per cent drag on the top line, and is likely to be similar this year.
Goldman Sachs has predicted more hard days ahead for the telcos from a reduction in the interconnect usage charges (IUC), to be reflected in the third quarter earnings.
“We thus forecast a mid-to-high single digit QoQ revenue decline in Q2 as against flat in Q1 for Bharti and Idea, with a 160/450 bps Ebitda margin decline. We note that the impact of IUC cut will only start reflecting from 3Q results", it said.
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