Jio, Airtel profit and cash generation to improve in FY2025

Analysts predict that India’s top two telecom operators, Reliance Jio and Bharti Airtel, will see improved profitability and cash generation through fiscal year 2025. This is primarily due to a likely moderation in 5G capital expenditure and customer churn starting from the current quarter and onwards from fiscal year 2024.

According to BNP Paribas, a noted financial institution, capital expenditure is expected to remain high in the second quarter of fiscal year 2024, but a moderation is expected in the second half of the fiscal year. This moderation is likely to help improve profitability and cash generation for both Reliance Jio and Bharti Airtel. The note from BNP Paribas also suggests that both companies are well-positioned in the medium term with growth levers such as subscriber upgrades, market share gains, and tariff hikes.

The managements of both Jio and Airtel have been guiding for a moderation in network capital expenditure starting from fiscal year 2025. They aim to conclude accelerated pan-India 5G rolloutsDecember 2023 (Jio) and March 2024 (Airtel). JM Financial, another financial institution, stated that Bharti Airtel’s management capex guidance implies a decline in annual business capex to ₹20,000 crore from fiscal year 2025. However, they maintain a conservative estimate of ₹27,000 crore for fiscal year 2025.

Jio and Airtel have seen significant expansion in their networks since the launch of 5G services in October 2022, with Jio having over 62 million 5G users and Airtel having over 50 million subscribers. On the other hand, Vodafone Idea (Vi), which is currently facing losses, has yet to announce the launch of its 5G services due to delayed fundraising.

Despite the recent launch of AirFiber or 5G-based fixed wireless access (FWA) servicesJio and Airtel, analysts believe that serious monetization of 5G services is at least a year away. BofA Securities suggests that one potential aspect that could surprise is Jio’s bundling of PayTV with its Jio AirFiber services. However, analysts agree that speedy 5G monetization is crucial for Jio as it has invested heavily in the next-generation broadband technology, and higher spectrum amortization and interest costs will soon reflect in the company’s financials.

In conclusion, analysts expect Reliance Jio and Bharti Airtel to experience improved profitability and cash generationfiscal year 2025. The expected moderation in 5G capital expenditure and customer churn, along with growth levers such as subscriber upgrades and market share gains, contribute to this positive outlook for both telecom operators. OPP Today