We have revisited our industry macro-model to realign our assumptions for next three years. We now expect industry AGR (incl. NLD) CAGR at 12% to INR 3,065bn over FY23-FY26E (vs 15.4% CAGR over FY20-FY23). Our assumption bakes-in organic growth of >6% CAGR and one tariff hike of ~10% in FY25E. Bharti’s AGR market share is likely to jump 125bps in the same period to 37.5% (vs +545bps to 36.2% in past three years), and RJio’s by +110bps to 42.5% (vs +690bps to 41.4%). This means Bharti and RJio’s AGRs are likely to grow at CAGRs of 13.2% and 12.9% respectively over FY23-FY26E. We believe revenue growth for Bharti / RJio faces upside risk from better data monetisation driven by 5G offtake, higher-than-expected tariff hike(s) and better-than-estimated market share win. Our conservative estimates of AGR growth appear healthy and can drive much higher EBITDA and FCF generation. We remain constructive on Indian telecom space; retain BUY on Bharti.
Industry AGR likely to register 12% CAGR over FY23-FY26E
- Indian telecom industry’s adjusted gross revenue (AGR, incl. NLD) registered a CAGR of 15.4% over FY20-FY23 to INR 2,188bn. This was driven by ARPU (based on AGR, and total subs) growth of 15.9% to INR 160 in the same period. Subs base dipped during this period. ARPU benefited from: 1) two tariff hikes (one in Dec’19 by ~25%, and another in Dec’21 by ~15%, on blended basis). Conversion in the first tariff hike was severely impacted by SIM consolidation, while the second hike had good flow-through to AGR; 2) 2G to 4G conversion; 3) acceleration in postpaid customer addition; and 4) data monetisation.
- We anticipate industry AGR to grow at a CAGR of 12% to INR 3,065bn over FY23-FY26E. This will be driven by ARPU CAGR of 10%. ARPU growth will be supported by: 1) blended tariff hike assumption of ~10% in FY25E; and 2) >6% CAGR growth from premiumisation and data monetisation. Nonetheless, industry AGR performance in past few quarters has shown organic growth (defined as AGR growth without tariff hike) can potentially sustain at much higher levels if operators execute better data monetisation.
- Further, we have not assumed 5G users to consume more data and upgrade to higher data plans as this hypothesis is still to be tested (hence not factored into our estimates).
- Bharti’s AGR market share rose 545bps to 36.2% in past three years (FY20-FY23). We estimate it to further jump to 37.5% in FY26E (+125bps). This means Bharti will continue to outperform industry growth, and its AGR will likely see a CAGR of 13.2% over FY23-FY26E.
- RJio has grabbed a higher AGR market share at 41.4% (+690bps) in past three years; however, the pace of its market share gain has decelerated in past two years. We estimate RJio’s AGR market share to expand to 42.5% by FY26E (+110bps). and, its AGR is likely to witness a CAGR of 12.9% over FY23-FY26E.
- We expect VIL to secure funding in our base case, and likely arrest the decline in its market share. Basically, India seems set to remain a three-private-player market. We estimate VIL’s AGR market share at 15.7% in FY26E.
Industry data subs base CAGR expected at 6% over FY23-FY26E
- Total subs base for industry dipped to 1,144mn, down 0.4% p.a. over FY20-FY23. This was due to clean-up of inactive sub-base by RJio. SIM population penetration dropped to 82.4% in FY23 from 85.9% in FY20. We expect 2.1% CAGR in subs base to 1,216mn over FY23-FY26E. One of large use cases of 5G is to drive higher SIM adoption in wearables, which is not factored into our assumptions. We are assuming SIM population penetration to again rise to 85% in FY26E.
- Bharti and RJio have both gained 410bps in subs market share in past three years to 32.4% and 37.6%, respectively. We expect RJio to continue to gain subs market share, and reach 39% by FY26E – while Bharti’s will likely remain stable.
- Industry data subs base has seen a CAGR of 5.2% to 840mn over FY20-FY23, which is adversely impacted by RJio subs-base drop in FY22. We expect data subs CAGR of 6% to 999mn over FY23-FY26E. Data subs penetration to total subs is estimated to increase to 82% in FY26E compared to 73.4% in FY23.
- Bharti’s data subs market share has improved by 635bps to 30.4% over FY20-FY23. This is likely improve to 32.8% in FY26E, up 240bps over FY23-FY26E. RJio’s data subs market share has dipped (on a very high base) by 250bps to 51.2% over FY20-FY23 and is likely to drop by a further 375bps to 47.5% by FY26E.
- Non-data subs have declined at a rate of 11.4% p.a. to 304mn over FY20-FY23 and is expected fall 10.6% p.a. to 217mn by FY26E.