Hit by coronavirus-induced lockdown, salary cuts, fall in smartphone sales, telecom sector may face difficulty in April-June quarter of the current fiscal. Even as for the major part of 1QFY21, the telecom sector was fully operational and led to increased data consumption, analysts say no revenue gains were witnessed. “Both the reported subscriber base and ARPU are likely to be sequentially lower for telcos in Q1FY21 given the lockdown effect,” said ICICI Direct Research in its report. S&P BSE Telecom index has rallied 58 per cent from an all-time low level hit in March this year. In comparison, S&P Sensex surged 29 per cent during the same period.
The research and brokerage firm expects lockdown to have some impact on telecom companies in the first quarter of the financial year 2020-21. It added saying that notable trends in the April-June quarter could be weak international roaming revenues, higher adoption of digital recharges, superior broadband traction and relatively slower 4G adoption impacted by low smartphone sales. The brokerage firm’s top pick is Bharti Airtel with a ‘buy’ rating and a target price of Rs 700, an upside of nearly 22 per cent. According to the brokerage, key monitorable to its rating will include commentary on ARPU trajectory and non-telecom business.
Another research and brokerage firm Kotak Institutional Equities expects a dull print for the telecom sector in the first quarter of the current fiscal. The brokerage firm believes Bharti Airtel to report flattish wireless revenues sequentially but strong year-on-year prints. It expects a particularly dull print for Vodafone Idea (VIL), where net debt and gross cash levels would be the key metrics to monitor.
Nationwide lockdown in the first quarter of the current financial year resulted in delayed recharges by low ARPU prepaid subscribers on account of the reverse labour migration and impact on income levels; minimal subscriber additions; SIM consolidation; and absence of international roaming revenues, noted Emkay Global Financial Services in its research report. The brokerage firm is bullish on Bharti Airtel stock, recommending it to ‘buy’. Bharti Airtel will need to jump 19 per cent from yesterday’s close to reach the target price of Rs 684 pegged by the brokerage firm.
“The previous-quarter trends of the subscriber shift from VIL to Bharti Airtel and Reliance Jio may have ended during the lockdown period, but this transition may have started back up from Jun’20, albeit at a slower pace,” said Motilal Oswal Financial Services with a ‘buy’ recommendation. It will take a 20 per cent jump from the previous close to touch the target price of Rs 690, pegged by the brokerage firm.