COVID impacts Q1FY22 telecom growth, ICICI Securities

Q1FY22 revenue growth for telecom sector will be slow despite an additional day in the quarter due to lower subs adds, particularly 4G subs, delayed recharges and SIM consolidation. Reliance Jio (RJio) revenue will grow relatively fast (+3.8% QoQ) as it benefits from strong subs add in Q4FY22 and continued traction for JioPhone. Bharti’s mobile revenue will grow at 1.5% QoQ, and VIL’s will dip by 1.4%. Bharti’s subs addition is likely to be just 2mn with 4G subs addition at 4mn. VIL may see continued slippage in sub base. Operators’ cost should benefit from lower sub acquisition cost and other expenses. Net profit for Bharti and RJio would be impacted by higher amortisation and interest cost towards spectrum bought in Mar’21 auction. Indus Towers would see tenancy addition (3,500) led by new tower growth. Tata Communications (TCom) would see muted growth in GDS revenue due to challenges in execution on covid-led lockdown in Indian market due to which the EBITDA may remain flattish QoQ.

• Covid impacts growth. Though Q1FY22E should have benefitted from one additional day in the quarter, the second wave of covid has impacted QoQ revenue for telcos. Subscriber addition slowed particularly with 4G sub adds on fewer handset sales, SIM consolidation for multi-SIM owners who skipped recharge for spare connection, delay in recharges and free recharges provided by telcos for large sub base. Bharti total sub and 4G sub addition are seen at 2mn and 4mn; for VIL, it is likely to dip by 2mn; up 1.5mn (4G subs) and RJio may see 8mn addition each, respectively. Bharti’s ARPU will rise 1.8% QoQ to Rs148, while VIL will see ARPU dip of 1% QoQ to Rs106. RJio’s ARPU will rise 1% QoQ to Rs140.
• Bharti’s consolidated EBITDA will be up 2% QoQ to Rs126bn. Bharti’s India revenues are likely to grow 1.5% QoQ (5.7% YoY) to Rs187bn led by mobile segment (up 1.5% QoQ / 11% YoY). India EBITDA is expected to be up 1.9% QoQ to Rs91bn. Bharti’s Africa US$ revenue and EBITDA are likely to grow 0.7% QoQ to US$1,045mn and 1% QoQ to US$497mn, respectively. Consolidated revenue will rise 1.7% QoQ to Rs262bn and EBITDA 2.1% to Rs126bn. Net profit is seen at Rs2.6bn, which will be impacted by amortisation and interest cost for spectrum bought in Mar’21 auction worth Rs187bn.
• VIL’s EBITDA will dip 10% QoQ to Rs40bn. VIL’s revenue will dip 1.4% QoQ to Rs95bn. This would be due to continued loss of subs (down 2mn). EBITDA is expected to dip steeper 10.2% QoQ to Rs40bn as Q4FY21 had one-off gain of Rs4.5bn in network cost. Net loss seen at Rs65bn for VIL (nil tax rebate).
• RJio net profit will dip 6% QoQ. RJio’s revenue will grow 3.8% QoQ to Rs180bn on strong addition in subs in Mar’21 and continued subs growth; consistent addition of FTTH subs which come at a higher ARPU. EBITDA will grow 4.2% QoQ to Rs86bn with incremental EBITDA margin at 53%. However, net profit is likely to dip by 6% QoQ to Rs32bn on recognition of amortisation and interest cost on Rs571bn spectrum bought in Mar’21 auction.
• Indus’ tenancies to rise by 3,500. Rental per tenant may rise 0.5% QoQ to Rs42,689 benefitting from rise in single-tenant tower which earns much higher rental/tenant. Rental revenue to rise 0.3% QoQ (+6.5% YoY) to Rs41.5bn. EBITDA is likely to dip 1.2% QoQ (+10.3% YoY) to Rs34bn which continues to be impacted from nil spreads in energy and QoQ rise in other expenses. We expect net profit to drop 4% QoQ but rise 17% YoY to Rs13bn.
• TCom’s EBITDA to rise 0.6% QoQ to Rs9.8bn (excl. real estate). GVS (global voice solution) revenues may drop 5.0% QoQ and EBITDA margin may be 6%. We estimate GDS (global data solution) revenues to rise 1% QoQ (down 1.5% YoY on high base) and impacted by covid-led lockdown in India where execution has significantly slowed. EBITDA margin is likely to remain stable QoQ at 26.9%. We estimate net profit at Rs3bn.

Quarterly summary

• Indus’ tenancies to rise by 3,500. Rental per tenant may rise 0.5% QoQ to Rs42,689 benefitting from rise in single-tenant tower which earns much higher rental/tenant. Rental revenue to rise 0.3% QoQ (+6.5% YoY) to Rs41.5bn. EBITDA is likely to dip 1.2% QoQ (+10.3% YoY) to Rs34bn which continues to be impacted from nil spreads in energy and QoQ rise in other expenses. We expect net profit to drop 4% QoQ but rise 17% YoY to Rs13bn.
• TCom’s EBITDA to rise 0.6% QoQ to Rs9.8bn (excl. real estate). GVS (global voice solution) revenues may drop 5.0% QoQ and EBITDA margin may be 6%. We estimate GDS (global data solution) revenues to rise 1% QoQ (down 1.5% YoY on high base) and impacted by covid-led lockdown in India where execution has significantly slowed. EBITDA margin is likely to remain stable QoQ at 26.9%. We estimate net profit at Rs3bn.

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