Telecom sector to ring in stability in Q2 – Jio and Airtel expected to grow stronger, Vi weaker

• Analysts expect stability in the Indian telecom sector in Q2, with Jio and Airtel likely to strengthen their position further.
• 4G subscriber additions and lower spectrum usage charges are expected to boost telcos’ operating performance.
• Focus will also be on management commentary regarding 5G capex and monetisation plans, and tariff hikes.

4G subscriber additions and a minor boost from lower spectrum usage charges (SUC) are expected to benefit India’s leading telecom players Reliance Jio and Bharti Airtel, while Vodafone Idea’s position could worsen despite a moderate increase in average revenue per user (ARPU), according to analysts.

The overall telecom industry is expected to report a stable quarter with a revenue growth of 19% year-on-year, according to BNP Paribas. On a sequential basis, however, the consensus forecast amongst brokerages is a 1-4% growth.

“However, quarter-on-quarter growth (2.4%) is likely to be weaker compared with the previous two quarters as tariff hike benefits are largely behind and subscriber additions are likely to be muted,” said a report by BNP Paribas.

The 5G spectrum acquired by the three telcos will not attract any SUC, which will bring down the overall amount of these statutory charges. However, since the airwaves were allocated halfway through August, brokerages say the full benefits will start reflecting only from Q3 of this fiscal year.

ARPU growth to remain moderate – another tariff hike possible

ARPU, which is the amount of money that telcos generate from each subscriber on an average, is expected to see a moderate 1-3% increase, primarily on account of higher number of days in the quarter. The brokerages suggest that most of the benefits of the $4 have already been reaped by the telcos.

Analysts at BNP Paribas and Edelweiss Research expect another tariff hike in FY23, and Vi could take the lead in this regard. “Tariff hike environment is right and we won’t hesitate to take leadership in hiking prices,” Vi’s then CEO and now chairman Ravinder Takkar had$4 earlier in August.

Vi bled $10 million a day in the first quarter in FY23 and lost 15 million subscribers in the period. The telco reported a loss of ₹7,293 crore in Q1, and a BofA Securities report expects it to worsen to ₹7,340 crore in Q2.

What to look out for in management commentary – 5G capex, tariff hikes

Amongst key aspects in the management commentary would be the telcos’ 5G capex and monetisation plans, clarity on the boost to margins due to lower SUC overall, and details of the next set of tariff hikes.

Brokerages also expect Jio and Airtel to report subscriber additions, while Vi is expected to lose 2-4 million subscribers in the quarter.

Earlier, a Nomura report$4 that telcos have two options to offset the extensive 5G spectrum purchases – increase prices for their existing subscribers by 4%, or launch 5G services at a premium of 30%.

For now, both$4 to their subscribers, but it remains to be seen which approach they adopt when their 5G services are launched commercially.


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