Telcos' Q3 earnings may rise up to 1.5% on redefined AGR

Vodafone Idea (Vi), Bharti Airtel and Reliance Jio Infocomm will see 1-1.5% rise in quarterly operating income and some margin expansion along with improved cash flows from fiscal third quarter, after the exclusion of a host of non-telecom income items under the new definition of adjusted gross revenue (AGR), analysts said.

This is since the new AGR definition, effective October 1, will translate into savings in telcos' regulatory payouts towards licence fees and spectrum usage charge (SUC).

IIFL Securities estimates Jio, Airtel and Vi will garner an extra ₹100 crore, ₹90 crore and ₹60 crore of earnings before interest, tax, depreciation and amortisation (Ebitda) from the December quarter, which works out to an increase of 1%, 0.8% and 1.5%, respectively.

Exclusion of non-telecom revenue in AGR computation on a prospective basis is estimated to result in a 0.6-percentage-point expansion in Ebitda margin for the three telcos from October-December, the brokerage said. Non-core items are estimated to make up 5-10% of a telco's total revenue.

On Tuesday, shares of Airtel ended 0.78% higher at ₹696.15, while Vi fell 0.38% to ₹10.40 on BSE. Shares of Reliance Industries, Jio's parent, closed 2.30% up at ₹2,661.50.

Jio's Ebitda and Ebitda margin stood at ₹8,989 crore and 48%, respectively, in the September quarter. Airtel and Vi have not yet reported fiscal second-quarter results. In the June quarter, Airtel's India business and Vi reported Ebitda of ₹9,273 crore and ₹3,708 crore, respectively. The operating margin was 49.3% for Airtel in India and 40.5% for Vi.

Analysts, though, expect the savings in regulatory costs and resultant Ebitda/cash flow gains to be more pronounced for Vi as its overall revenue base is smaller than the two financially stronger rivals.

Late on Monday, the Department of Telecommunications (DoT) introduced a concept of applicable gross revenue (ApGR), which is arrived at by excluding all non-telecom revenue earned by telcos from their gross revenue (GR).

Nitin Soni, senior director at global ratings firm Fitch, said going forward, "faster adoption of new spectrum assets would further boost telcos' regulatory cost savings as telecom service revenues earned on airwaves acquired in future auctions won't attract SUC." The government has scrapped SUC on future spectrum purchased in auctions.