Telcos set for modest Q1 as disruptive phase subsides

Indian telecom firms are expected to record modest growth in the first quarter of FY24 owing to stable tariffs and the assumption of further improvement in subscriber mix. EBITDA is also seen to pick up although at a single-digit growth level, meanwhile, ARPU may see a gradual upside. Giants like Reliance Jio and Bharti Airtel are well-placed for a healthy quarter with sales seen to rise by double-digit year-on-year.

Kunal Vora – Head India Equity Research, BNP Paribas in his report said, “With stable tariffs for over a year now, we expect the Indian telecom industry revenue growth to moderate to 8- 9% y-y in 1QFY24, assuming an improving subscriber mix as more customers adopt 4G services.”

He expects Bharti and Jio should continue to report double-digit sales growth YoY owing to market share gains.

Also, EBITDA growth should be higher for them (15-17% y-y) with margin improvement aided by the cut in spectrum usage charges (SUC).

Furthermore, Avishek Datta – Research Analyst, Prabhudas Lilladher said, “Q1FY24 revenue and EBITDA of telecom companies in our coverage universe (Jio (unrated) + Bharti) is expected to increase by +2.2%QoQ and +1.8% QoQ to Rs438 billion and Rs231bn resp. with steady subscriber addition of 8.7 million, besides building a gradual increase in ARPU growth (1.3%QoQ).

Brokerage JM Financial expects Jio and Bharti’s EBITDA to grow by a modest 2-3% QoQ driven by MBB upgrades led growth of 1-2% in ARPU. It added that ARPU growth will also be aided by one more day during the quarter.

Accordingly, JM Financial said, “We expect Jio’s net subs to grow by ~7mn in 1QFY24 and ARPU to rise 0.8% QoQ to ₹180, driving 2.3% QoQ growth in revenue and 2.5% QoQ growth in EBITDA. For Bharti, we expect MBB subs addition at ~6 million, resulting in a 1.8% QoQ rise in ARPU to ₹196, driving 2.4% QoQ growth in India wireless revenue and 2.3% QoQ growth in EBITDA. We expect VIL’s subs losses to continue; however, its ARPU is likely to rise 1.7% QoQ to ₹137. We expect net tenancy additions for Indus Towers to remain healthy; hence, EBITDA is likely to rise 3% QoQ in 1QFY24.”

The majority of them have maintained their positive stance on the sector. Further, Bharti Airtel remains the top pick of brokerages, while Reliance Jio is not rated as it is not listed.

Datta said, “Due to falling competitive intensity, given weak financial position of peers, we maintain our positive stance on the sector. We also factor in delayed tariff hikes and build in ARPU of Rs205/235. Reiterate ‘BUY’ on Bharti (preferred pick) at SOTP-based TP of Rs923 as we incorporate minor changes in our assumptions.”

Also, JM Financial’s note said, “Bharti remains our top pick (revised TP of ₹975) as we expect a structural uptrend in industry ARPU (9-10% CAGR over FY24-28) driven by future investment needs – the industry requires an ARPU of ₹267-296 in the next 3-4 years for a pre-tax RoCE of 12-15% to justify capex. We maintain HOLD on Indus Towers (revised TP of ₹160) due to duopoly risks and a SELL on VIL (unchanged TP of ₹6) due to concerns around survivability.”

Going forward, Vora sees Bharti and Jio as well positioned in the medium term with growth levers such as subscriber upgrades, market share gains, and tariff hikes. Also, he expects a moderation in churn and capex to help improve the profitability and cash generation over FY23-25.

Vora added, “Tariff hikes, though delayed vs our earlier expectations, are just a matter of time, in our view. The disruptive phase for the industry is long behind now, in our view, and we do not consider the launch of JioBharat as a disruption.” Livemint