Telecom Q4 results preview: Muted growth at Airtel, Reliance Jio

Growth in India’s telecom industry has likely moderated for the first time in nearly three years amid a churn in subscriber base and absence of across-the-board tariff hikes.

Revenue of Reliance Jio Infocomm Ltd., Bharti Airtel Ltd. and Vodafone Idea Ltd. grew 0–4% sequentially in the fourth quarter of the 2023 financial year, analysts indicated. The growth came on the back of increased data usage as users upgraded to mobile broadband services on smartphones, even as a sharp hike in entry-level prepaid tariffs induced a churn in the subscriber base.

That’s likely to reflect in average revenue per user as well.

“Over the last few quarters, we saw sharp market share gains by Airtel and Jio from Vi, which may moderate given that Vi users are now seeing decent network experience,” Motilal Oswal Financial Services Ltd. said in a research report. “We expect 1–2% ARPU increase across the telcos, driving 2–3% sequential revenue growth for Airtel and Jio and flat revenue for Vi.”

Here’s a look at the five key points investors should look out for in the upcoming telecom earnings:

Subscriber Base
At 5-6 million, Jio is likely to have added the highest number of subscribers in January–March. That compares with net additions of 2 million at Airtel while, Vodafone Idea is likely to lose 3 million users.

There could be an increase in 4G and postpaid subscribers for all the three companies, which could support the rise in blended ARPU. Airtel and Jio, in particular, stand to gain as they are now offering unlimited 5G data on prepaid plans of Rs 239 and above.

ARPU
The outsized churn in lower revenue segments due to sharp increases in prices of minimum recharge plans is likely to keep the ARPU growth muted.

Jio’s ARPU is likely to increase by 0.5% sequentially to Rs 179 due to upgradation to smartphones and higher tariff plans. Airtel’s ARPU is seen at Rs 193–197—up 2% sequentially—on the back of 2.8 million new 4G subscribers. Vodafone Idea, which continues to bleed users, likely saw its ARPU rise to Rs 138—up 2.5% sequentially.

Ebitda & Margins
Tailwinds of a reduction in spectrum usage charges, coupled with the likelihood of muted revenue growth, likely kept the growth limited in the earnings before interest, taxes, depreciation and amortisation.

Jio and Airtel are likely to have expanded their margins by up to 40 basis points sequentially, Motilal Oswal said in its note.

ICICI Securities Ltd., however, expects Airtel’s operational profitability over the previous three months due to seasonality in the Africa business. India Ebitda is seen up 0.7%.

Vodafone Idea, despite its market share loss and higher marketing costs to restrict churn, is likely to grow its Ebitda by 1% with a margin improvement of 30 bps.

CapEx
Spending on rollout of 5G services likely remained elevated in the March quarter, as Jio and Airtel expanded coverage to 406 cities and 265 cities respectively in March from 66 and 70 cities in December 2022.

Jio—which has a capex plan worth Rs 2 lakh crore, including spectrum—aims to achieve pan-India 5G coverage by December 2023 by using its standalone architecture. Airtel, which has set aside Rs 75,000 crore, aims to cover all urban centres by March 2024.

There’s no word yet on Vodafone Idea’s 5G rollout plans.

Tariff Hikes
The telecom industry needs to earn Rs 256–285 from each user in the next three–five years to justify the spending on 5G services. With the current levels at Rs 138–197, that seems like an uphill task unless tariff hikes come into play.

Airtel is seen as the biggest beneficiary of higher tariffs, given the sticky and premium quality of its subscribers, ensuring that tariff hikes flow through to the ARPU. Jio, whose user base is still largely prepaid, has introduced fresh postpaid plans and new 5G offers to lure high-paying subscribers—their impact will be keenly watched.

Vodafone Idea, meanwhile, continues to be in survival mode, with any tariff hike seen as a deterrent to an eroding subscriber base. Bloomberg