CRISIL Q3 FY18 Results. Outlook

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1 CRISIL Q3 FY18 Results Outlook January 2018

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3 Rs bn Industry summary Results review (July September 2017) Revenue growth edges up again Aggregate topline performance was relatively better at 6.8% in the second quarter of fiscal 2018, after a weak first quarter. Key commodity-linked sectors such as cement, steel products, aluminum and natural gas registered a healthy 21% on-year growth in revenue and saved the day. Steel and non-ferrous metals led the commoditylinked sectors performance, benefitting from the rise in prices. Further, the pain in consumption sectors relatively softened, with all consumption-linked sectors, excluding telecom, registering a growth of 14% on-year. Telecom continued to see a sharp drop of over 20% in revenue amid pricing pressure. Similarly, export-linked sectors such as IT and pharma continued to show a subdued growth of close to 3%, although it was better than the decline in the last quarter on a year-on-year basis. The analysis is corroborated from the performance of over 450 companies across 50 sectors (excluding financial services and oil) Industry revenue, on-year basis % 7.2% 6.1% 5.6% 6.8% 8.0% 7.0% 6.0% % 3.8% 5.0% 4.0% % 0.0% Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY % 2.0% 1.0% 0.0% Revenue Growth ( y-o-y) 1

4 A snapshot of key sectors Revenue Growth Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Overall 2.0% 0.0% 5.2% 3.8% 3.8% 7.2% 6.1% 5.6% 6.8% Key Industries 2.9% 0.1% 8.2% 6.2% 6.0% 8.2% 6.3% 5.9% 8.0% Automobiles 10.6% 12.5% 16.1% 9.6% 11.0% 2.7% 6.8% 4.7% 20.3% FMCG -2.5% -2.0% 1.3% 5.7% 6.5% 2.4% 5.7% 0.8% 6.6% IT services 15.3% 13.2% 18.3% 14.0% 8.6% 9.4% 4.8% 2.6% 3.6% Pharmaceuticals 9.0% 7.0% 15.6% 8.7% 8.2% 10.3% 0.6% -8.3% 0.5% Power 13.8% -0.8% 12.3% 3.1% 0.6% 6.3% -0.1% 6.4% 3.5% Steel products -17.2% -20.4% -6.4% -2.3% 7.1% 28.7% 24.5% 23.3% 25.5% Telecom services 9.2% 7.6% 9.5% 6.7% 6.8% -2.5% -14.0% -15.8% -22.0% Note: key sectors include airline services, aluminium, automobiles, auto components, capital goods, cement, chemicals, construction, FMCG, housing, IT services, media & entertainment, natural gas, pharmaceuticals, power, retail, steel products, sugar, telecom services, cotton yarn and tyres; overall industry covers key sectors and other sectors (automotive castings, ceramic tiles, chlor alkalies, coal, coffee, distillers and breweries, edible oil, educational services, ferro alloys, fertil isers, gems and jewellery, hotels, hospitals, ites, material handling, oilfield equipment, paper, ports, power cables and conductors, power transformers, roads and highway, shipping, steel intermediates, steel pipes, tea, transmission towers and telecom towers) Key segments that supported revenue growth in the second quarter: Steel products: Aggregate revenue increased 25% on-year, because of a sharp increase in realisation and steady demand. Domestic flat and long steel prices rose 19% and 27% on-year, respectively, in line with higher global prices amid strong demand in China. Increase in domestic demand by 4.1% on-year, coupled with a sharp export growth of 56% on-year, supported the top-line growth of domestic steelmakers. Sugar: Revenue of North-based sugar mills increased a significant 40% on-year, driven by higher volume of sugar in Uttar Pradesh due to better yield. On the other hand, revenue of South-based mills remained flat on-year. Automobile: The automobile sector posted a 20% on-year growth, mainly because of a surge in the sales of cars and utility vehicles (UVs) (22% on-year growth) on the back of new-model launches. Revenue of domestic commercial vehicle (CV) manufacturers rose 33% on-year, mainly due to an 18% rise in realisation and a 15% growth in sales volume growth, driven by relatively higher growth in the MHCV segment as well as the higher priced BS-IV compliant vehicles. Higher sales volume in the quarter was also because of the postponement of purchases from the first quarter of fiscal 2018, due to apprehensions to buy newer technology vehicles (BS-III to BS-IV) and lower freight movement before the GST implementation. Two- 2

5 wheelers and tractor manufacturers net revenue grew 10% and 14% on-year, respectively, driven by an increase in sales volume amid lower realisations. Natural gas: Aggregate revenue increased 18%, led by a similar increase in regasification and distribution segments, which were driven by volumes. Distribution volumes grew 14% on-year, because of higher demand for CNG (compressed natural gas) as well as PNG (piped natural gas). Transmission revenue grew 12% onyear, because of a 3% increase in transmission tariff and a 9% growth in transmission volume. Petrochemicals: Aggregate revenue increased 16% on-year, led by a rise in volume and product prices. Higher crude oil prices resulted in higher polymer prices during the quarter. The ramp-up of Reliance Industries (RIL) 2.2-MMTPA PX plant at Jamnagar supported volume growth. Thus, RIL s revenue (accounting for ~80% of the sample set s total revenue) increased ~26% on-year. Airline services: Aggregate revenue increased 16%, due to a steep growth in passenger traffic. Despite a marginal rise in fares, total passenger traffic grew 14% on-year during the period. Cement: Aggregate revenue grew a healthy 15% on-year, largely driven by a ~12.7% increase in sales volume and supported by a ~2.2% rise in realisation. Revenue of UltraTech, the largest contributor to the set, registered 20.2% revenue growth, primarily due to a 17.5% increase in sales volume. Other key sectors Pharma: The sector recorded a tepid revenue growth of 0.5% on-year, due to lukewarm sales growth by large and mid-sized formulation players. Revenue of large formulation players fell 0.5% on-year, as pricing pressure in the base business in the United States (US) market continued to impact realisation during the quarter. However, two para IV launches gave the overall business support, offsetting the impact of price erosion in the base business. Telecom: The sector witnessed a drastic 22% on-year fall in total revenue, due to pressure on realisation amid the ongoing price war. In addition, with voice getting bundled with data, the industry is losing voice revenue to data. Further, the cheaper bundled packs offered by Reliance Jio led to a decline in the average realisation per MB of data from ~22 paise in the second quarter of fiscal 2017 to ~2 paise in the second quarter of fiscal 2018, leading to industry de-growth. IT services: The sector witnessed a moderate growth of 3.6%, mostly due to a stronger rupee. The rupee gained significantly by ~4% on-year in the corresponding quarter against the dollar, affecting the rupee revenue of players in general. Billing rates continued to decline in traditional IT services, because of their increased commoditisation. FMCG: The sector recorded a 7% on-year growth in revenue, due to expanding volume, as product prices were reduced with players passing on the benefits of lower taxes on many FMCG products to customers. Restocking after the disruption due to GST implementation also helped in growth. 3

6 Power: The sector s growth was below the industry average. Revenue of the power generation segment remained tepid at 1.1% on-year, due to tepid demand. However, the transmission segment witnessed a robust growth of 16% on-year, because of strong asset capitalisation. Thus, the power sector witnessed a 3.5% on-year rise in revenue in the second quarter of fiscal Aluminium: Aggregate revenue for companies in the sample set rose 9.8% on-year, because of production growth and improved realisation. Domestic aluminium prices improved 4% on-year, in line with the elevated London Metal Exchange (LME) prices. Domestic demand for aluminium also witnessed a slight uptick in September. Pricing pressure and higher input cost dent EBIDTA margin A rise in the input cost and pricing pressure dented the overall profitability of Indian industries. EBITDA (earnings before interest, tax, depreciation and amortisation) margin contracted a little lesser than 100 basis points (bps) to 19% in the second quarter of fiscal Pricing pressure led to a fall in realisation across key sectors, such as telecom, pharma and IT services. The rupee gained a significant ~4% on-year in the corresponding quarter against the dollar, affecting the rupee revenue of players. While telecom services witnessed pricing pressure due to intense competition in the domestic market, pharmaceuticals and IT services faced pricing pressure in the global market. Several other sectors, such as textiles, tyres, petro chemicals and sugar, witnessed falling margins due to a rise in input cost. The prices of key inputs steel and crude oil rose 23% and 13% on-year, respectively, leading to a contraction in margins for these sectors. Margins stabilised on a quarter-on-quarter basis. For most key sectors, except telecom, margins improved, resulting in a better EBIDTA margin on a sequential basis. However, overall EBIDTA for key sectors showed an increase, as revenue growth revived, with GST woes settling down and higher commodity prices aiding a recovery. 4

7 Industry s EBITDA margin 22.0% 21.0% 20.0% 19.0% 19.4% 19.2% 19.9% 21.1% 20.0% 20.3% 18.9% 19.0% 18.0% 17.9% 17.0% 16.0% Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY A snapshot of key sectors EBITDA margin Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Overall 19.4% 19.2% 19.9% 21.1% 20.0% 20.3% 17.9% 18.9% 19.0% Key Industries 19.7% 19.4% 20.8% 21.4% 20.6% 20.6% 18.9% 18.9% 19.6% Automobiles 13.4% 12.2% 13.7% 12.7% 13.2% 11.9% 11.1% 10.5% 13.7% FMCG 22.9% 24.0% 23.8% 23.3% 23.6% 24.0% 24.1% 23.4% 24.4% IT services 25.4% 24.9% 24.9% 23.1% 23.4% 24.6% 23.5% 22.1% 23.2% Pharmaceuticals 24.8% 23.6% 22.2% 24.4% 24.3% 24.0% 18.3% 17.3% 20.9% Power 32.5% 35.2% 37.0% 34.4% 34.2% 33.5% 32.4% 34.3% 36.0% Steel products 9.7% 5.7% 9.5% 16.6% 12.7% 15.5% 15.0% 13.0% 14.8% Telecom services 35.0% 35.1% 36.4% 35.9% 35.4% 31.4% 29.8% 27.6% 24.0% Note: Key sectors include airline services, aluminium, automobiles, auto components, capital goods, cement, chemicals, construction, FMCG, housing, IT services, media and entertainment, natural gas, pharmaceuticals, power, retail, steel products, sugar, telecom services, cotton yarn and tyres; overall industry covers key sectors and other sectors (automotive castings, ceramic tiles, chlor alkalies, coal, coffee, distillers and breweries, edible oil, educational services, ferro alloys, fertilisers, gems and jewellery, hotels, hospitals, ites, material handling, oilfield equipment, paper, ports, power cables a nd conductors, power transformers, roads and highway, shipping, steel intermediates, steel pipes, tea, transmission towers and telecom towers) 5

8 The on-year increase in EBITDA margin was driven by: Sectors such as airline services (due to a rise in the aggregate passenger load factor), media and entertainment (lower employee costs and newsprint prices), retail (better operating leverage and input-tax credit on rentals) and natural gas (lower operating costs). Automobiles and auto components witnessed a slight expansion in the margin. Other than these key segments, a decline in the operating margin was witnessed in sectors such as sugar (higher raw material cost), cotton yarn (sharply lower cotton yarn prices compared with cotton prices), telecom services (competitive pricing of Reliance Jio), IT services and pharmaceuticals (rupee appreciation and pressure on billing rates), and petrochemicals (higher raw feedstock prices). Poor operating performance continues to impact net margin on-year Net margin dropped a sharp 200 bps on-year to 7.7%. The decline was much sharper than at the operating level. Almost 13 of 21 key sectors showed a decline in margins at the net level, compared with 8 out of 21 that showed a fall in EBIDTA margin. While construction showed a nearly 700 bps drop in net margin amid stretched balance sheet and restructuring, pharma companies showed a drop amid write-offs. Most commodity-linked sectors such as cement, tyres and petrochemicals, continued to show a decline in net margin, in line with operating margin. Pricing pressures continued to impact the net margin of telecom players amid higher capital spending. 6

9 Industry s net margin 10.0% 9.0% 8.0% 8.7% 7.9% 8.2% 9.2% 9.7% 8.4% 7.2% 7.7% 7.0% 6.0% 5.0% 4.6% 4.0% Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY A snapshot of key sectors Net Margins Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Overall 8.7% 7.9% 8.2% 9.2% 9.7% 8.4% 4.6% 7.2% 7.7% Key Industries 8.6% 8.2% 8.0% 9.1% 9.9% 8.3% 3.7% 6.9% 8.1% Automobiles 7.8% 7.1% 7.0% 8.4% 9.1% 6.6% 5.7% 6.6% 8.5% FMCG 15.4% 16.8% 15.3% 15.8% 16.5% 16.9% 16.8% 15.8% 17.0% IT services 19.1% 19.0% 18.8% 18.2% 18.3% 18.6% 18.3% 17.5% 18.3% Pharmaceuticals 16.1% 15.9% 13.4% 16.0% 15.7% 14.6% 10.6% 5.3% 12.6% Power 10.8% 10.1% 6.9% 9.1% 9.5% 9.0% -3.1% 8.8% 10.4% Steel products -8.6% -12.0% -7.0% -4.3% -5.7% -3.2% -1.9% -5.1% -1.2% Telecom services 11.2% 9.3% 7.2% 5.6% 8.3% -1.6% -61.3% -6.7% -13.8% 7

10 Performance metrics of major sectors Revenue growth versus EBITDA margin across key sectors (past four quarters) 40% EBITDA Margin (%) Industry 35% Power 30% FMCG IT services 25% Pharmaceuticals 20% Petrochemicals Cement 15% Aluminium 10% Construction 5% Capital Goods Automobiles Airline services Revenue Growth (y- o- y %) 0% -5% 0% 5% 10% 15% 20% 25% Note: Data represents aggregate performance of the mentioned sectors for the past four quarters (Q3 FY17 to Q2 FY18); size of the bubble indicates sector s share in overall industry s revenue 8

11 Industry outlook Revenue outlook Growth looks up as consumption linked sectors gain momentum, signalling cyclical recovery CRISIL Research expects corporate revenues excluding that of banking, financial services and insurance, and oil companies to rise ~ 9% on-year in the third quarter ended December 31, Consumption-linked sectors, with the exception of telecom services, is expected to grow at a robust 13-14% driven by a demand boost from the festive season, and owing to the low base effect from demonetisation impact in the same quarter last fiscal along with the fade-out of GST-related disruptions. Commodity-linked sectors such as steel products and petrochemicals are expected to continue growing amid firm prices. On the other hand, growth in telecom, information technology (IT), and pharma sectors may slacken in the quarter. Appreciation in the rupee and pricing pressures will continue to affect export-linked sectors such as pharma and IT services. While pricing and regulatory pressures from the US will remain in pharamceuticals, new product launches will help contain the damage, though this could take a few quarters to play out. Telecom industry will continue to face pricing pressure, as incumbents slash tariffs to maintain competitive pricing. Sectoral snapshot Revenue growth Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3 FY18 E Key sectors 0.1% 8.2% 6.2% 6.0% 8.2% 6.3% 5.9% 8.0% 8.6% Automobiles 12.5% 16.1% 9.6% 11.0% 2.7% 6.8% 4.7% 20.3% 15.1% FMCG -2.0% 1.3% 5.7% 6.5% 2.4% 5.7% 0.8% 6.6% 8.5% IT services 13.2% 18.3% 14.0% 8.6% 9.4% 4.8% 2.6% 3.6% 3.8% Pharmaceuticals 7.0% 15.6% 8.7% 8.2% 10.3% 0.6% -8.3% 0.5% -0.4% Power -0.8% 12.3% 3.1% 0.6% 6.3% -0.1% 6.4% 3.5% 5.1% Steel products -20.4% -6.4% -2.3% 7.1% 28.7% 24.5% 23.3% 25.5% 20.0% Telecom services 7.6% 9.5% 6.7% 6.8% -2.5% -14.0% -15.8% -22.0% -21.0% Steel products: Revenue is projected to increase 19-20% on-year, owing to revival in domestic demand along with a surge in exports, leading to healthy volume growth. Overall sales volume is expected to grow 8-9% on-year. In July-August 2017, domestic demand is estimated to have risen 4.1% on-year and exports, 50% on-year. Domestic flat and long steel prices are expected to rise 6-8% and 13-15% on-year in the third quarter, respectively, because of sharp uptick in global steel prices and elevated raw material prices. 9

12 FMCG: Aggregate revenue is expected to improve 8-9% on-year. Growth will spring from the low base of the previous year. Further, with tax restructuring for many FMCG products during the 23rd meeting of the GST Council held on November 10, players are likely to pass on the benefits of reduced taxes to customers. This will lead to softening of prices, and growth will be led by a rise in volumes. A stable value chain and improving rural demand will also aid growth. IT services: Rupee revenue is projected to rise slower by 3-4% on-year. This is mainly due to the rupee appreciating nearly 4% on-year, coupled with continuing pressure on billing rates in traditional information technology services. Automobiles: Revenue for the automobile industry is projected to grow at a healthy 14-16% on-year. Revenue of passenger vehicles is expected to rise 8-10% on-year on the back of traction from GST implementation, as also due to favourable responses for popular models. Revenue of two-wheeler players is expected to rise by 15-20% on-year driven by rapid growth in scooters and motor cycles, while mopeds are expected to witness de-growth. Commercial vehicles revenue is expected to rise ~30% on-year owing to ~19% rise in volumes and ~11% rise in average realisations. Power: Revenue for the power sector is expected to grow at a slow 5%, led by the generation segment, which is expected to rise 3-4% on-year due to a steady rise in generation. The transmission segment, which accounts for 11% of the sector, will grow 11-13% on-year, because of the high transmission capacity addition during the past four quarters, leading to higher capitalisation. Distribution revenue is expected to rise 6-8% on account of on-year increase in power demand as well as tariff revision for Tata Power s distribution business in Mumbai. Telecom: The industry s gross revenue is expected to fall by ~21% on-year owing to heightened competitive intensity. In an effort to retain high data-using subscribers, incumbents are devising new bundled offers and innovative data plans to counter Reliance Jio, which has led to deteriorating realisations (both data and voice). Although Jio has started increasing tariffs directly as well as indirectly (by reducing validity for same pack), its offerings are still competitive compared with the subscription packs offered by incumbents. In addition, the cut in interconnect usage charges from 14 paisa/min to 6 paisa/min will impact revenue of incumbents, as they were net gainers from access charges. Pharmaceuticals: Aggregate revenue is expected to marginally drop in the third quarter on account of a 1-3% decline in revenue of large formulation players. Realisation pressure in the base business in regulated markets, coupled with lower opportunity in the generic space, is expected to hamper revenue growth. However, this will be partially offset by 9-11% on-year growth in the domestic segment. Revenue for Glenmark Pharma and Lupin is expected to come under substantial pressure. 10

13 Sugar Petrochemicals Natural gas Steel products Retail Airline services Automobiles Cement Aluminium Tyres Auto components FMCG Cotton yarn Power IT services Housing Media & Entertainment Construction Capital Goods Pharmaceuticals Telecom services Revenue growth outlook across sectors for the third quarter of fiscal % 40% 30% 20% 10% 0% -10% -20% -30% 20% 15% 9% 5% 4% Average growth: 8.6% -21% 11

14 Other sectors that are expected to drive revenue growth are: Airline services: The aggregate revenue of the airlines industry is expected to increase 16-18% on-year in the third quarter, upon strong growth in passenger traffic, primarily in the domestic sector. Domestic passenger traffic is expected to increase 16-17% on-year, despite a rise in fares by airlines. Chemicals: The aggregate revenue of companies in the petrochemicals segment is slated to rise 25-27% onyear, owing to improvement in petrochemicals realisations, in turn due to a rise in feedstock naphtha prices following higher crude oil prices. Stabilisation in production of RIL s PX plant of 2.2 MMTPA capacity at Jamnagar will drive the volume growth. Cement: Revenue is projected to rise 12-14% on-year, owing to 8-9% increase in sales volume and a healthy improvement in realisation, led by higher input prices. 12

15 EBITDA margin outlook Rising input costs squeeze corporate profitability CRISIL Research believes that revenue growth is not likely to bring enough operating leverage to offset the impact of rising oil and commodity prices, rupee appreciation, and pricing pressures in several sectors in the third quarter. Consequently, India Inc will continue to face a contraction in earnings before interest, taxes, depreciation, and amortisation (EBITDA) margins by bps to 19.4% on-year. The rupee s appreciation could add to pricing pressure and high input costs, hurting exporters earnings, IT services and pharmaceuticals. Profitability of telcos will continue to drop alarmingly by 638 bps despite higher data traffic, owing to competitive pricing among players. Higher commodity and raw material prices may take a toll on the margins of consumer companies, more acutely for those in the sugar and tyres sectors. Snapshot of key sectors Ebitda Margins Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3 FY18 E Key Sectors 19.4% 20.8% 21.4% 20.6% 20.6% 18.9% 18.9% 19.6% 19.4% Automobiles 12.2% 13.7% 12.7% 13.2% 11.9% 11.1% 10.5% 13.7% 12.4% FMCG 24.0% 23.8% 23.3% 23.6% 24.0% 24.1% 23.4% 24.4% 24.8% IT services 24.9% 24.9% 23.1% 23.4% 24.6% 23.5% 22.1% 23.2% 23.9% Pharmaceuticals 23.6% 22.2% 24.4% 24.3% 24.0% 18.3% 17.3% 20.9% 19.4% Power 35.2% 37.0% 34.4% 34.2% 33.5% 32.4% 34.3% 36.0% 34.3% Steel products 5.7% 9.5% 16.6% 12.7% 15.5% 15.0% 13.0% 14.8% 14.9% Telecom services 35.1% 36.4% 35.9% 35.4% 31.4% 29.8% 27.6% 24.0% 25.0% Change in EBITDA margin outlook in the third quarter of fiscal

16 Aluminium Natural gas Construction FMCG Power Cotton yarn Auto components Automobiles Retail Petrochemicals IT services Steel products Cement Media & Entertainment Capital Goods Airline services Tyres Pharmaceuticals Telecom services Housing Sugar 400 Change in bps between Q3FY17 and Q3FY18P ,000 Aluminium- EBITDA margin is expected to improve 319 bps on-year, largely on account improved realisations. Power: Margins are expected to expand ~70-90 bps on-year on account of lower fuel costs, led by decrease in landed cost of domestic coal post GST implementation. However, margin expansion will be partially restricted as imported coal prices are still at an elevated levels on-year. FMCG: EBITDA margin is expected to expand bps on-year on account of benign commodity prices and input tax credit. However, companies are expected to have increased their marketing activities to offset the sombre mood of customers due to GST, and push consumer promotions during the festive season to increase sales. This will increase marketing and selling expenses and restrict further margin expansion. Steel products: Sharp rise in domestic iron ore prices is expected to weigh down EBITDA margin by ~60-70 bps on-year. Despite an estimated decline in global iron ore prices on-year, Indian iron ore miners are expected to raise prices. As a result, domestic iron ore prices are pegged to be ~35% higher on-year in the third quarter. IT services: EBIDTA margin is expected to decline marginally. While revenue from less resourceintensive digital services is growing, stagnant utilisation and falling realisation from non-digital services will arrest margin expansion. Also, while the US dollar has depreciated versus the rupee onyear, the pound has rebounded significantly. 14

17 Automobile sector: Better capacity utilisation, improved product mix, and higher prices would lead to margin expansion, with commercial vehicles being top gainers. Pharmaceuticals: EBITDA margin is projected to contract bps to 18-19% on-year on account of price erosion in the base business, weaker product profile, increase in research and development spend by the players, absence of any para IV launches, and continued pricing pressure in regulated markets. Telecom services: EBITDA margin is estimated to contract sharply by ~640 bps as industry revenue comes under pressure, coupled with flattish operating expenses. The shutdown of RCom's 2G business will also add to the effect. Further, the launch of new networks on spectrum acquired during the October 2016 auctions will increase the network operating expenses of operators. However, the fall in margin will be moderated by a decline in access charges (as expense) for the incumbents. 15

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