Telecom sector continues to show signs of recovery, Ind-Ra

India Ratings and Research (Ind-Ra) opines a turnaround in the telecom sector is visible for the past four to five quarters, through (a) a moderation in the competition intensity, resulting in waning tariff differentials, (b) increasing data penetration, supporting growth in average revenue per user (ARPU), and (c) growing subscriber base. A combination of these factors is resulting in an overall improvement in the operational and financial parameters of telecom companies. The agency believes that the sector is moving towards a higher ARPU regime, which along with the growth in the subscriber base is expected to continue to result in higher revenue for telcos. This, along with a conducive regulatory environment and a possible pick-up in the data usage and enterprise business activities led by COVID-19, is expected to benefit the telecom companies at large.

Revenue Growth led by Increasing Subscriber Base and ARPU: Reliance Jio Infocomm Limited (RJio; ‘IND AAA’/Stable) and Bharti Airtel Limited (BAL; debt rated at IND A1+) reported strong growth in revenue in 3QFY21 wherein their revenue from mobile services in India rose by 5% qoq (2QFY21: 12%) and 7% qoq (7%), respectively. This was attributable to both growth in their subscriber base and ARPU. While BAL’s telecom mobile subscriber base grew 5% for two consecutive months in a row and stood at 308 million at end-3QFY21, Rjio’s subscriber base grew moderately at 1% in 3QFY21 (2QFY21: 2%) to 411 million. RJio and BAL also reported an increase in ARPU to INR151 in 3QFY21 (2QFY21: INR145) and INR166 (INR162), respectively.

Despite reporting 1% yoy revenue growth in 3QFY21 supported by an increase in ARPU to INR121 from INR119 a quarter ago, Vodafone Idea Limited’s (VIL) subscriber base continues to decline, albeit at a moderate rate compared to previous quarters (3QFY21: negative 1%; 2QFY21: negative 3%). The agency expects continued revenue growth for both RJio and BAL, supported by the moderation in the competition intensity among the players. While ARPU of VIL is also expected to grow, the movement in its subscriber base needs to be monitored. Nonetheless, the post-paid tariff plans by RJio and tariff hike by VIL for select plans announced in the past six months indicate the inclination of industry players towards growth in ARPU in the long run.

Rising Penetration of Data and Broadband Customers Augur well for APRU Growth: The proportion of data subscribers continued to grow sharply for both BAL and VIL and stood at 57% and 51%, respectively, in 3QFY21 (3QFY20: 49% and 47%). The share of broadband subscribers in the overall subscribers base also grew rapidly for BAL and VIL to 54% and 45%, respectively, in 3QFY21 (3QFY20: 44% and 39%). All the telcos also reported strong growth the data traffic, with BAL continuing to report the highest average monthly data usage at 16.8GB/user in 3QFY21 compared to 12.9GB/user for RJio and 12.3GB/user for VIL. The increasing share of data and broadband subscribers along with the increase in data tariffs augurs well for ARPU growth.

Improvement in Financial Profile of Telcos, supported by Fund Raising Activities: While growing EBITDA is supporting the cash flows for all the three telcos, the liquidity situation of RJio and BAL stands adequate. RJio is supported by its financially resourceful parent – Reliance Industries Limited (RIL; ‘IND AAA’/Stable), BAL’s robust liquidity is attributable to the significant deleveraging and fund raising activities over FY18-FY20. The liquidity situation of VIL is weak; that being said, its board had approved an INR250 billion fund raising activity in September 2020, for which the company is in discussion with potential investors.

Spectrum Auctions Around the Corner; A Key Monitorable: The government is planning to sell 4G spectrum in the 700MHz, 800MHz, 900MHz, 1,800MHz, 2,100MHz, 2,300MHz and 2,500MHz frequencies in the upcoming spectrum auctions, which are scheduled to be held in March 2021. Payment terms for the spectrum involve an option to the bidders to make the entire payment upfront or pay 25%-50% upfront with remaining to be paid over 16 years after a two-year moratorium. The agency believes that the sustained capex and/or investment towards network enhancement and/or acquisition of spectrum (4G+5G) will remain a key monitorable over the next two to three years.
CT Bureau