Churn and fewer 4G subscribers to slow down telecom revenue growth in Q3
Reliance Jio, Bharti Airteland Vodafone Ideaare expected to report another stable quarter with moderate revenue growth. Telcoshave been witnessing a slowdown in 4G subscriber additions and rising costs due to the 5G rollout.
- Analysts suggest the much-expected tariff hikes will be the “key trigger” going forward.
While the market leader Reliance Jio is expected to report a net addition in subscribers, its rivals Bharti
And it would have an effect on the revenues of the sector as a whole. “Our Q3FY23 estimates suggest a deceleration in mobile revenue growth across telcos due to SIM consolidation, lower benefit of premiumisation from slowdown in 4G net add, and absence of tariff hikes,” said an ICICI Securities report.
Overall, analysts expect the three telcos to report earnings growth in the range of 9.4-19.7% year-on-year. Reliance Jio is expected to report the highest revenue growth at 19.7% YoY while its close rival Airtel is expected to report a 17.5% increase. Vodafone Idea, on the other hand, is expected to report revenue growth on the lower end at 9.4%, according to ICICI Securities.
Overall, on a sequential basis, the revenue growth is expected to flat – in the range of 0.1-1.7% — with Vi being on the lower end once again.
Tariff hike the ‘key trigger’ going forward
Going forward however, telcos are expected to deliver a 10% tariff hike in Q4 FY23. Tariff hikes, analysts say, are “key triggers” for telecom stocks.
“From an industry structure, balance sheet and cash flow viewpoint, telcos remain one of the best positioned and a defensive play to navigate through the market uncertainties, if any. Potential tariff hike is the key trigger,” said a report by Dolat Capital.
Telcos have been expected to announce tariff hikes for quite some time now – the last tariff hike in the industry was in December 2021. Analysts had expected telcos to deliver a similar hike in December 2022, which never materialized.
While Jefferies sees a tariff hike in Q4 FY23, analysts at IIFL Securities suggest the hike could happen only by mid-2023.
Despite rolling out 5G services back in October, both Airtel and Jio are offering 5G services at no added cost to their subscribers. Cumulatively, the three telcos spent ₹1.5 lakh crore towards their spectrum purchases.
Increased churn adds to lack of tariff hikes
As the timelines for possible tariff hikes are yet to emerge, the margins will remain stressed as there is one more pain point that’s added to the sector in the form of increased subscriber churn. Telecom users started shopping for better plans in the last four months.
According to the telecom subscriber data for October 2022 released by the Telecom Regulatory Authority of India (TRAI), the number of MNP requests in October surged to 11.81 million – close to September’s 11.97 million, which is the highest in 2022.
Additionally, the rollout of 5G and Jio offering unlimited high-speed data is also likely to change the competitive landscape of the sector.
“Subscriber (sub) base for Bharti Airtel and Vodafone Idea is likely to shrink while Reliance Jio’s net sub additions (+5mn) may moderate,” said a report by ICICI Securities.
The scrambling for high-end 5G customers in a market that’s already saturated will make the telecom market much tougher, putting margins for the sector under pressure.
Telecom Industry may Post Good ARPU's But, Not Expecting Stocks to React on That.Due to Market Sentiment and Fear of Recession, Their we May see a Dent in Sentiment.If Telecom Giants Post normal to Average Results as per Street Expectations, A Downmove of Atleast 5-7% Possible and More.....Only on Positive Surprise is the Key, for Bulls to Take Charge.$BHARTIARTL.NSE CMP 797On the Verge of Breakdown, My Top Pick on Short Side to Play.Downside Expecting 760-730 Levels in a Very Short Term.View is Bearish on Telecom Industry, Even after Expecting Good No.....— (@AyushGarg1997) January 06, 2023
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