Moderate growth with similar CapEx expected for telcos in 4QFY24, MOFSL

We expect the overall telecom sector to see a moderate revenue growth of 2.1% QoQ, driven by both an increase in subscribers and mix led ARPU improvements. In the absence of tariff hike, we expect incremental EBITDA margin to remain at ~64%. CapEx is expected to remain similar as observed in the previous quarter. However, the absence of tariff hike, slow market share shift from VIL, and the gradual 5G ramp-up have not significantly contributed to revenue growth, and might potentially lead to a moderation in revenue growth over the next few quarters. This is in contrast to the 4-5% QoQ growth witnessed in the last few years.

Bharti looking to drive ARPUs; RJio chasing subscriber growth
Industry growth is expected to be driven by a 1.2% increase in ARPU mix and a 1.1% growth in industry subscribers. Within the industry, Bharti/RJio continue to see higher revenue growth of 2.4%/2.5%. Bharti’s revenue growth will be largely led by 1%/1.5% increase in subscribers/ARPU. RJio’s revenue growth should be led by 2.2% subscriber growth while ARPU expected to be flat, reflecting its continued dominance in capturing incremental subscriber market share, largely from VIL. Bharti’s strategy involves upgrading 2G subscribers to 4G, premiumising toward postpaid services, and promoting high data usage. This approach emphasizes ARPU enhancements through a diversified mix of services.

Blended ARPU growth supporting margin improvement
The EBITDA margin may slightly improve with limited operating leverage, due to the slower revenue growth. We expect ~3% QoQ EBITDA growth for both RJio and Bharti, respectively, with margin expansions of 20-40bp to 52.7% and 52.5%, respectively. We expect VIL to post ~1% QoQ EBITDA growth, led by an increase in ARPU, even after losing its market share with margin expansions of 30bp QoQ to 41.1%.

Similar CapEx to continue
We expect the CapEx to remain consistent with the last quarter, driven by ongoing investments in 5G infrastructure and rural network densification efforts. RJio has already completed the rollout of 5G telecom services in the majority of cities/towns by Dec’23, using standalone architecture. In contrast, Bharti plans to cover urban cities by Mar’24, using non-standalone architecture. VIL’s 5G plans depend on its ability to secure funding. It also plans to use the non-standalone architecture for its 5G rollout. Bharti’s management expects INR750b CapEx in the next three years with front-loading in the initial period. RJio plans to invest INR2t to develop its network (including INR881b for the spectrum).

CT Bureau