Delayed Bharti profitability to hit Singtel's 2020 earnings

The telco’s earnings are tipped to decline 10% in 2020.

Singtel’s earnings could fall 10% in FY 2020 and 8% in FY 2021 amidst delay in the profitability of Bharti, meagre growth from Telkomsel, and a weak Australian Dollar, according to DBS Group Research.

The delay in Bharti is likely with a lack of tariff revisions and continued pressure on Bharti’s fixed segment from Jio. Bharti’s losses have held back the recovery of Singtel associates, and is expected to recover only if Jio raises tariffs once it becomes difficult to win over subscribers from Vodafone-Idea.

A tariff revision is only expected upon the upgrade of Vodafone-Idea’s network. Vodafone-Idea lost about 14 million subscribers in Q2 from poor service quality due to the integration of the networks of the two merging telcos set to complete in June 2020.

In October, Jio withdrew its low-value prepaid packs priced 37 cents (INR19) and $1 (INR52), rendering $1.89 (INR98) as the lowest tariff plan on offer.

In addition, Singapore was the only market in its region to post revenue decline from data services, compared to the 5-15% growth elsewhere, which continued to drag the mobile topline of Singapore operators to negative territory.

“We see further room for declines in data yields as operators continue to maintain an aggressive stance on the data front and the looming entry of TPG over H2 2019, which may further exacerbate pricing declines in the low-end segment,” DBS analyst Sachin Mittal wrote.

Singtel is also expected to report core-EBITDA margins below 30% due to pricing pressures in the mobile markets in Singapore and Australia, and growing contribution of low-margin ICT service businesses to its enterprise segment.

Mittal wrote that it may have to either trim its dividends or exit from digital business in order to maintain its credit rating. The telco is already planning to monetise some of its digital business investments like cybersecurity firm Trustwave, which posted a loss before interest and tax of $102m in FY 2019.