The month of March saw strong growth in telcos’ subscriber base with 26.5mn additions for the month (a 2.29% increase). This growth was much stronger than the growth of 0.43% in February. The urban segment saw additions of 12.2mn subscribers (a 1.87% increase), while the rural segment saw additions of 14.4mn subscribers (a 2.84% increase).
Reliance Jio once again led subscriber additions with 5.32% growth, with 9.4mn additions. However, other major operators also saw significant improvements in subscriber growth. Idea Cellular grew at 4.5% (an improvement of 228bps mom), with 9.1mn additions in March. Bharti Airtel grew at 2.8% (an improvement of 141bps mom), with 8.4mn additions in March. Vodafone grew at 2.6% (an improvement of 108bps mom) with 5.6mn additions in March. Remaining operators saw a de-growth of 23% mom (6.1mn deletions), due to the exit of telecom operators such as Telenor, Reliance Communications, and Aircel.
The sharp growth for major operators like Bharti and Idea in March is likely due to strong growth in rural markets, where Jio does not have as strong a presence. However, this comeback looks to be in trouble given Jio’s new postpaid plan. For this reason, the erosion in ARPU that Idea (7.8% qoq) and Airtel (5.9% qoq) had experienced in Q4FY18 is likely to remain.
Idea Cellular is facing intense competition, hence, we expect revenue CAGR of 6.4% over FY18-20E leading to an EBITDA margin of 23% in FY20E. Revenue growth would be supported by a significant growth in data revenues over FY18-20E. EBITDA margin is expected to expand by 161bps to 23% in FY20E. The stock is currently trading at 10.3x FY20E EV/EBITDA.
Bharti Airtel is likely to see revenue CAGR of 4.5% due to (1) subscriber growth offsetting reduction in ARPU, and (2) strong growth in the Africa business over FY18-20E. EBITDA margin is expected to rise to 42.7% in FY20E, owing to improved profitability of Airtel Africa. We expect Bharti Airtel to report PAT CAGR of 82% over FY18-20E. The stock is currently trading at 38.9x FY20E EPS. – IIFL