Telcos likely to report a strong JFM2022 quarter

India’s telecom companies are likely to report a strong performance in the three months ended March, the first full quarter after tariffs were increased in November-December.

Bharti Airtel, Vodafone Idea, and Jio Platforms, are expected to report 7-9 percent growth in their average revenue per user (ARPU) on a sequential basis, according to analysts polled by Moneycontrol.

Bharti Airtel reported an ARPU of Rs 163 per month in the quarter ended December, while Jio’s ARPU was Rs 151.6 and Vodafone’s was Rs 115.

“We expect a healthy quarter for frontline telcos as traffic revival QoQ continues in Q4 on the back of seasonality tailwinds.

Bharti is expected to report 2.3% QoQ growth driven by India wireless business with ~2.5% QoQ traffic growth and marginal voice pricing improvement while expectations from Africa remain muted after several quarters of revenue and margin disappointment; currency headwinds (Nigerian currency depreciation) would further hamper growth.

Idea yet again to post strong volume growth which would drive 3.8% QoQ revenue growth along with ~60bps sequential rise in margin to ~35%; full impact of upfront payment for spectrum auctions would be visible in Q1 FY16.

RCom revenue growth is likely to be lackluster at 1.8% YoY as volume growth lags that of peers and voice pricing remains mostly flat QoQ; YoY margin and PAT comparison not relevant as Q4 FY14 had one time depreciation impact.

Bharti Infratel revenue growth pegged at 2.3% QoQ and ~8% YoY on 0.03x rise in standalone tenancies while margins would continue their upward trajectory with a gain of ~40bps QoQ.

Tata Communications revenue growth would remain modest at 2.2% QoQ though we would focus on margins which would rise 20bps QoQ as data margins are expected to hover around 20%. Overall we continue to like Bharti, Idea and Tata Comm in the sector and have BUY recos on all three stocks,” IIFL Securities

“With the full benefits of the tariff hike, JP Morgan India expects the three telecom companies to report 5-7 percent sequential growth in revenue.

Most of the subscriber churn may have taken place in the quarter ended March.

Bharti Airtel may report a 7 percent sequential growth in revenue on the back of a 9 percent jump in ARPU in the quarter.

Reliance Jio is expected to report a 6 percent quarter-on-quarter growth in revenue, helped by a 9 percent rise in ARPU. However, the brokerage expects Jio to report a loss of 2 million subscribers as part of the ongoing consolidation of low-income users. Jio had 421 million customers in the third quarter,” JP Morgan India

“We expect 4QFY22 to be a strong quarter for telecom companies with likely revenue and EBITDA growth of 6-11% QoQ due to the impact of around 20% tariff hike undertaken by the industry in November 2021.

However, the increase in telecom tariffs is starting to affect the lower rung of telecom subscribers.

“The industry is witnessing outsized churn in the lower ARPU segments given the entry-level prepaid tariff hike in July 2021, followed by another sharp hike in November 2021. Hence, it is likely to continue to witness muted subscriber addition and limited upgrades to high APRU plans,” JM Financial

“We expect Airtel to continue to gain market share with sector-leading ARPU and subscriber growth in 4QFY22. Bharti Airtel is expected to report over 1 million new subscribers in the quarter as against a little-changed subscriber base for Reliance Jio and a loss of 4 million users for Vodafone Idea.

Vodafone Idea may report stellar operating profit growth, led by gains from tariff hikes,” Credit Suisse Securities India

“Airtel and Jio should see an acceleration in revenue and subscriber market share gains at Vi’s expense in the medium-term after the 5G auction as both telcos will definitely target pan-India 5G airwaves to invest in this future broadband technology, which financially-weaker Vi won’t be able to match.

Vi’s auction participation to be limited to a few circles as the TRAI-recommended 5G spectrum reserve pricing (if accepted by the government) would prove stiff, given the telco’s balance sheet constraints and pending fundraise”, Fitch Ratings.

CLSA backed the view, saying “Jio and Bharti will lead the 5G auction as both claim their network infrastructure is 5G-ready”.

“To be sure, BNP said TRAI’s call for easier spectrum payment terms over 30 years and the option to surrender new airwaves are positives for Vi, especially as the latter already has large chunks of under-utilised spectrum,” BNP Paribas

UBS said “Bharti has another 12- to 24-month window of opportunity for market share gains from Vi, given its headstart on 4G, which could be further cemented, post 5G launch.”

“Brokerages said Bharti Airtel, which had a customer base of 356 million in India at the end of the third quarter, will likely retain its dominance in both ARPU and subscriber additions.

Besides the earnings, investors will focus on the management commentary on their subscriber bases, potential tariff hikes this year, capital expenditure plans, the 5G spectrum auction, and margins given the higher fuel costs for running telecom towers in the June quarter,”

CT Bureau