The telcos see revival in FY23

The FY23 results of the telcos suggest a revival that is expected to be sustained over the coming years.

With BSNL poised for a turnaround, the three private telcos closed FY23 with combined gross revenues of ₹3.1 lakh crore, significantly higher than ₹2.6 lakh crore in FY22. This had a similar impact on the adjusted gross revenue (AGR) that was ₹2.36 lakh crore in FY23, up from ₹2.06 lakh crore in FY 22; and on the license fee collections for the government, ₹16,700 crore in FY23 against ₹15,000 crore in FY22.

Industry AGR (incl. NLD) rose 1.4 percent QoQ / 9.1 percent YoY to ₹56,000 crore. Top-3 operators’ combined AGR (incl. NLD) rose 1 percent QoQ / 8.7 percent YoY during Q4 FY23. Industry AGR (incl. NLD) grew at a high single digit despite no tariff hike in the past 12 months, while QoQ revenue growth was lower due to two less days in the quarter. The growth was driven by subscriber addition and premiumisation (2G to 4G). FY23 AGR (incl. NLD) stood at ₹2,18,800 crore vs ₹1,90,200 crore in FY22, up 15.1 percent. Industry gross revenue was up 1.3 percent QoQ (7.1 percent YoY) to ₹62,800 crore.

Bharti Airtel Limited
Airtel delivered strong revenues and operating margins across the portfolio during FY23 and the overall cash flow, i.e., Ebitda minus CapEx is ₹23,000 crore. This was despite heightened CapEx, rural expansion, and no meaningful tariff hikes.

The company has reported total income of ₹1.39 lakh crore during FY23 as compared to ₹1.17 lakh crore during FY22, a 19.38-percent increase. The company posted net profit of ₹8345.9 crore for FY23 as against ₹4255 crore in FY22, an increase of 47.94 percent. The telco’s net debt is ₹226,020 crore as of March 31, 2023.

The EPS was ₹14.57 for FY23 as compared to ₹7.63 for FY22. The results were in line with estimates as a higher-than-expected performance in India was offset by slower growth in Africa. Growth in homes and enterprise business remains strong.

Bharti’s AGR (incl. NLD) increased 1.3 percent QoQ / 10.8 percentYoY to ₹20,400 crore. Bharti’s AGR (incl. NLD) market share rose to 36.5 percent (flattish QoQ, up 60bps YoY). Its incremental AGR YoY was ₹2,000 crore vs ₹2,400 crore for RJio. Circle-wise analysis shows Bharti grew faster in C’ circles (2.3 percent QoQ), A (+1 percent) and B circles (+1.1 percent ) while in the metros AGR was stable QoQ. The circles that underperformed are: Mumbai (- 2.7 percent QoQ), Tamil Nadu (-2.8 percent), UP East (-2.7 percent) and Punjab (-1.6 percent). Bharti’s market share improvement was driven by Delhi (+80bps QoQ), Maharashtra (+70bps), Andhra Pradesh (+65bps) and Karnataka (+90bps). In FY23, Bharti’s AGR (incl. NLD) was up 18.5 percent YoY at ₹79,300 crore.

The total subscriber base stood at 335.4 million as of March 2023, on a total of 275,069 network towers. Its total number of 4G customers now stands at over 224 million and they account for 67 percent of its India customer base. The average data usage per customer per month remained flat sequentially at 20.3 GB but was 20.2 percent higher on a YoY basis.

The telco’s prospects are bright, underlining positives like a strong addition in 4G subscriber base and improving data consumption. Tariff hikes, if any, will boost the company’s ARPU, that remained flat sequentially and grew 8.4 percent on a YoY basis to ₹193. A year ago, that figure stood at ₹178.

Airtel continues to report decent performance on Indian wireless business front with resilient and industry-leading KPIs in terms of India post-paid/4G subscribers, margins, and cash flow generation (despite elevated CapEx).

FY24 CapEx in India will be largely similar to FY23 (₹28,000 crore). Bharti Airtel has stopped adding any 4G capacity BTS, and 5G CapEx beyond urban locations will depend on handset penetration. It will continue to invest in transport network and enterprise business. It expects CapEx from FY25 onwards to moderate from highs of FY23 and FY24. Analysts expect it to decline to 17 percent of revenue by FY25, from 27 percent in FY23.

Bharti Airtel has added 37,492 sites and 33,650 km of fiber in a year. And is adding 1.6 million home passes in FTTH per quarter. The telco is leveraging FTTH to wide up the towers and this has been a huge game-changer in terms of wiring up the towers on a very, very smart and efficient basis. The telco is re-engineering its towers wherein it plans to relocate 66.5k towers from high-cost locations.

Bharti Airtel’s 5G services are now live in 3500 census towns (out of 7000) and the telco is adding 35–40 towns daily with the target of covering the urban and key rural areas by end FY24. Rural rollout is based on handset penetration, which has slowed down. 5G handset penetration has not picked pace as was anticipated.

Reliance Jio Infocomm Limited
RJio reported revenues of ₹90,786 crore for FY23, up 17.9 percent from ₹76,977 crore in FY22. RJio’s net profit rose 22.87 percent over the year-ago period to ₹24,429 crore.

Ebitda growth of 24.2 percent YoY from ₹37,857 crore in FY22 to ₹47,034 crore in FY23 was led by higher revenues and ~260 bps increase in margins.

Jio’s net subscriber addition was 29.2 million during FY23, and a customer base of 439.3 million as the fiscal came to a close, with monthly churn remaining stable at ~2 percent. ARPU increased 6–7 percent YoY to ₹178.8 per month, due to the impact of tariff hike, better subscriber mix, and data add-ons within the select customer cohorts. An RJio user consumes 23.1 GB per month versus 13.3 GB per month two years ago.

RJio’s AGR (incl. NLD) rose 1.7 percent QoQ / 11.3 percent YoY to ₹23,300 crore. RJio’s AGR (incl. NLD) market share was 41.7 percent , up 13bps QoQ. AGR growth has been relatively higher in B and C circles – 2.2 percent and 2.3 percent QoQ respectively; A circle AGR grew 1.4 percent while metro AGR was flattish. Circle-wise analysis shows RJio lost market share in six circles, including. Delhi (-115bps QoQ), Karnataka (-6bps QoQ), UP West (-198bps) and Odisha (-95bps). RJio showed significant pick-up in AGR in Mumbai and Kolkata circles, up 3.9 percent and 2 percent QoQ respectively. In FY23, RJio’s AGR (incl. NLD) rose 17.5 percent YoY to ₹90,500 crore.

Jio Platforms (JPL), holding company of the telecom and digital services business of Reliance Industries Limited, reported a 23.5-percent YoY growth in net profit to ₹19,124 crore for FY23. Revenue from operations stood at ₹98,099 crore, up 20.2 percent. However, the stellar revenues of ₹25,465 crore in the March 2023 quarter meant that JPL’s annualized revenue rate (ARR) stood over ₹1 lakh crore.

RJio is expected to incur a capital expenditure of ₹38,000 crore in FY24 and ₹31,000 crore in FY25. “Despite the aggressive 5G CapEx cycle, it is notable that the network operating expenses at RJio remained flat for Q4 FY23 at ₹72,000 crore,” said Swarnendu Bhushan and Aliasgar Shakir, research analysts at Motilal Oswal Financial Services Ltd. “Growth will continue to soften due to a higher base and a lack of tariff hikes amid heightened competition, along with intensifying 5G spending.”

Net debt (excluding CapEx creditors and lease liabilities) increased from ₹78,503 crore in FY22 to ₹151,500 crore in FY23, largely led by 5G spectrum and launch-led CapEx. The large CapEx has created significant operating leverage, which should drive earnings in FY25, according to JPMorgan analysts, Pinakin Parekh and Sarfraz Bhimani. Still, Reliance Jio’s free cash flow – at ₹6700 crore in FY23 – was a positive surprise, as it was the highest-ever for a fiscal, despite the CapEx.

Pan-India 5G rollout target of December 2023 is on track with RJio having launched 5G during Q3, and 5G coverage has expanded to 2300+ towns and cities till date. The company indicated that 60,000+ sites have been deployed across 700 MHz and 3500 MHz bands with six sectors.

Moving forward, for Jio, the best way to ride out this tide of debt would be to increase ARPU by way of tariff hikes, and improve the subscriber mix with more high-paying postpaid subscribers. Among the three private telecom operators in India, RJio continues to have the least number of postpaid users. But analysts do not expect any material change in the postpaid user base. “Postpaid users are an extremely sticky lot,” says Mayuresh Joshi, head of equity research at William O’Neil & Co. in India. “For a postpaid user, it becomes very difficult to switch operators, and the telecom companies know that. There’s very little churn in terms of postpaid, and they do not get swayed by offers.”

The company continues to see 5G as a medium to long-term enabler of higher data usage and ARPU driver along with its dedicated efforts to catch up on postpaid offerings (through new plans) where it currently lags incumbents.

Furthermore, it has declared intent to aggressively expand broadband coverage (targeting 100 million customers in two to three years versus the current base of ~9 million) both through new plans and fixed wireless access (likely to be launched when 5G reaches critical mass). RJio’s fiber-to-home service, accounts for 60 percent of all wired broadband connections in India. In Q4 FY23, Jio Fiber added a net 700,000 users – its subscriber base is now 34 percent higher than that of Airtel. But its contribution to RJio’s revenue remains miniscule at 6 percent.

It also continues to build on enterprise use case, both for large enterprises and small and medium businesses. Thus, with no tariff hike in sight, 5G users’ data usage trend will drive the ARPU in the near and medium term.

Superior spectrum portfolio, along with superior digital ecosystem offering, lends Jio a competitive advantage even in 5G (as seen in the 4G foray)

Vodafone Idea Limited
The annual revenue of Vi, for the first time since merger, improved compared to last year. Revenue for FY23 grew by 9.5 percent from ₹38,520 crore to ₹42,180 crore supported by tariff hikes, improving subscriber mix and 4G subscriber additions. As a result, EBITDA for the year increased from ₹6680 crore to ₹8300 crore, registering a strong growth of 24.1 percent. EBITDA margin at 19.7 percent is the highest post merger.

CapEx spend for FY23 stood at ₹3360 crore.

The total gross debt (excluding lease liabilities and including interest accrued but not due) as of March 31, 2023 stood at ₹209,260 crore versus ₹222,890 crore as of December 31, 2022, due to the conversion of debt representing NPV of interest arising due to deferment of spectrum instalments and AGR dues into equity issued to Government of India. It comprises of deferred spectrum payment obligations of ₹130,710 crore and AGR liability of ₹65,550 crore that are due to the government, debt from banks and financial institutions of ₹11,390 crore and Optionally Convertible Debentures amounting to ₹1610 crore. With cash and cash equivalents of ₹230 crore, the net debt stood at ₹209,030 crore.

The company continues to have a negative net worth of ₹74,360 crore.

Vi’s AGR (incl. NLD) market share fell to 16.6 percent (down 40bps QoQ). Vi’s AGR (incl. NLD) dipped 1.1 percent (both QoQ and YoY) to ₹9,300 crore. Dip in its leaders hip circles was at 1 percent QoQ due to fall in QoQ revenue in Andhra Pradesh (down 3 percent QoQ) and UP East (down 6.2 percent). AGR decline in the established circles was 0.6 percent QoQ while decline in others was at 6.5 percent. Mumbai AGR grew 8.2 percent QoQ and UP West was up 3.7 percent. In FY23, Vi’s AGR (incl. NLD) rose 6.6 percent YoY to ₹37,700 crore.

Vodafone Idea had 225.9 million subscribers as on March 31, 2023. And while its active user base shrunk by 1.7 million to 207.9 million, the high-paying 4G user base grew by a million to 122.6 million. The blended churn stood at 3.8 percent in Q 4FY23 as against 4.4 percent in Q3 FY23.

The January–March 2023 period was notable for Vi as the government agreed to convert into equity the interest accrued on the company’s dues. Vi is now proposing a significant equity infusion of ₹14,000 crore as part of its business revival plan. The plan includes contributions from the company’s existing promoters, Aditya Birla Group (ABG) and Vodafone Group Plc. The two promoters will invest ₹2,000 crore as fresh equity, with them already having invested ₹5,000 crore since the government’s telecom revival package in September 2021. They will collaborate with the company to raise an additional ₹7,000 crore from external investors, either through direct equity or convertible structures.

The company is also yet to launch its 5G operations.

Bharat Sanchar Nigam Limited
In FY23, BSNL’s revenue from operations was at ₹19,130 crore, compared to ₹16,811 crore in FY22, a 14-percent growth. The telco’s revenue target based on its MoU with DoT was ₹17,161 crore, The growth in revenue was driven largely by BSNL’s FTTH, leased line businesses, and other operating income that grew 30 percent to ₹2071 crore. Mobile services, which contribute 29 percent to BSNL’s revenue from operations, witnessed a 7-percent YoY increase at ₹5638 crore in FY23.

The government has set the revenue target of the company at ₹20,008 crore for FY24, ₹24,428 crore for FY25, and ₹28,476 crore for FY26.

In FY23, BSNL’s loss widened to ₹8161 crore, compared to ₹6982 crore in FY22. The increase in consolidated losses is due to the provision for AGR dues to the government worth ₹17,688 crore; it received the viability gap funding of ₹16,189 crore. Owing to this adjustment, the company showed an exceptional loss of ₹1499 crore, which increased its total net losses.

BSNL’s total expenses rose 5.1 percent to ₹27,364 crore. Of ₹27,364 crore, employee cost, which includes salaries, wages, allowances, and other benefits, was at ₹7952 crore, an increase of 11 percent from FY22.

As of March 2023, BSNL’s wireless subscriber base was at 103.6 million, which is the lowest among all four operational telecom operators. In the last 15 months till March-end, the company lost nearly 11 million subscribers.

The government is making all efforts to turnaround the PSU.

The recent merger of BBNL with BSNL gives it access to nearly 6.11 lakh kilometers of freshly laid optical fiber cable network. This is between the block HQ and the gram panchayat. BSNL has a total optical fiber network of more than 7.78 lakh route kms, which is the highest by any telco in India; most of this fiber is between the district HQ and the block HQ, and a substantial portion of this fiber has been laid in the NLD (intercity) backbone of the country. The merger with BBNL has boosted its capacity to handle heavy data traffic and meet much of the requirements of rural India from the 2.23 lakh GPs which are already connected to the BBNL’s broadband network.

BSNL has placed an advance purchase order of over ₹19,000 crore with Tata Consultancy Services and ITI Limited for the deployment of a 4G network, comprising more than 1.23 lakh sites. BSNL would be deploying a completely home-grown telecom network, which has all its components designed and developed indigenously, and in complete consonance with global standards. The 4G Core was designed and developed by C-DoT, and the Tata Group company, TCS, has taken the lead in providing the radio access network (RAN) The network would be jointly rolled out by the engineers of TCS and BSNL.

BSNL has started rolling out of 4G network with 200 sites, and after a three-month trial will launch an average of 200 sites per day. It is aiming to capture 100 million 4G customers in 2 years, i.e., effectively, an average of 1000 4G subscribers per tower now being set up.

Plans are that 4G network of BSNL will be upgraded to 5G by December 2023.

While the market forces decide the fate of the telcos, a ₹256–₹285 ARPU would not hurt!