Telecom companies’ Q4 revenue likely to moderate due to lack of significant tariff hikes
- Earnings of Indian telecom companies are headed for a moderation in Q4 amidst a lack of significant tariff hikes.
- Analysts expect a rise in data usage and users upgrading to 4G/5G to lift the average revenue per user (ARPU) as well as margins.
Jioand Airtel’s focus on aggressive expansion of 5G coverage across the country is also expected to keep their capital expenditure elevated.
AdvertisementIndian telecom companies are likely to report a moderation in Q4 earnings amidst a lack of significant tariff hikes. An expected slowdown in market share gains of leading telcos Reliance Jio and Bharti Airtel at the expense of
Analysts, however, expect an increase in data usage and users upgrading to 4G/5G to boost the average revenue per user (ARPU) as well as margins. According to a report by Motilal Oswal, Jio and Airtel are expected to report a 4-5% sequential growth in data usage in Q4, while Vodafone Idea is expected to see a 1% increase.
“The industry continues to see outsized churn in the lower ARPU segments given the sharp hike in entry-level prepaid tariff in the last 18-24 months. Hence, subscriber (subs) addition is likely to remain muted,” said a report by JM Financial referring to the increase in base tariffs, like Airtel’s ₹99 plan that was increased to ₹155.
Analysts expect Jio to lead in terms of revenue growth at 13.6% year-on-year, followed closely by Airtel at 12.9%. Vodafone Idea is expected to come in third at 2.6%.
Overall, though, analysts at JM Financial have Airtel as their top pick. “Bharti is the biggest beneficiary of higher tariffs given the sticky and premium quality of its subs, ensuring that tariff hikes flow through to ARPU.”
Airtel to extend its lead over rivals in ARPU
While Jio has kept its tariffs unchanged, Airtel has hiked the price of its base plan of ₹99 to ₹155 in all the 22 circles, after testing the waters in Q3. This will help the telco increase its ARPU a tad higher than its peers – analysts at Motilal Oswal expect Airtel’s ARPU to increase to ₹197 from ₹193.
Jio and Vodafone Idea are expected to report a ₹2 increase in their ARPUs to ₹179 and ₹137, respectively.
In addition to this, the brokerage also expects SIM consolidation – wherein subscribers dump extra SIM cards and retain their primary one – to aid ARPU growth. Once again, Airtel and Jio could emerge as the top gainers with a 2-3% sequential growth while it is expected to be flat for Vodafone Idea.
Jio and Airtel’s unlimited 5G plans to aid market share gains
AdvertisementAdding to the woes of Vodafone Idea, Jio and Airtel’s unlimited 5G plans, starting at ₹239 per month, are expected to help the latter two gain market share at the expense of the former.
The analyst consensus is that Jio and Airtel could gain between 1-2% subscribers during the quarter, while Vodafone Idea is expected to lose 1% of its subscribers. That said, the subscriber loss for Vodafone Idea could be lower in Q4 on a sequential basis, at 3 million versus 5-6 million in the previous two quarters.
Capital expenditure to remain elevated due to 5G rollout
Jio and Airtel’s focus on aggressive expansion of 5G coverage across the country will result in high capital expenditure outlays, according to brokerages. While
For context, Airtel and Jio had 5G coverage in 66 and 70 cities respectively in December 2022. “We expect their capex to remain elevated in 4QFY23 and may increase further from previous quarters,” Motilal Oswal said.
AdvertisementWhile Jio targets pan-India 5G coverage by December 2023, Airtel is aiming to cover all major cities by the end of March 2023. All in all, Jio’s capex outlay for 5G rollout, including spectrum costs, is ₹2 lakh crore. Airtel, on the other hand, has an outlay of ₹75,000 crore.
With the pace of rollout expected to increase from here on, the capex is expected to increase at the same pace.
Vodafone Idea’s 5G rollout will depend on its fundraising, the details of which are unclear at the moment.
Analysts at ICICI Securities expect Airtel to call for the second tranche of payment for its ₹21,000 crore rights issue to fund its 5G capex – the telco had announced it back in October 2021.
Overall, the gap between the leaders – Jio and Airtel, and the laggard – Vodafone Idea, is expected to continue to widen in Q4 in all critical aspects like revenue, profit, ARPU and subscribers. The lack of a fundraise too has delayed Vodafone Idea’s 5G rollout, which is only making matters worse for the telco.
Increased competition, delayed tariff hikes could effectively lead to a Jio-Airtel duopoly
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