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Muted quarter for telcos; eyes on 5G expansion ahead - Telecom preview

ICICIdirect Research 11 Apr 2023 DISCLAIMER

What's Buzzing:

ARPU growth is expected to be muted across telcos as upgrade benefits will be offset by lower number of days in the quarter. 


We expect Reliance Jio (Jio) to lead subscriber addition with ~6.5 million (mn) net sub additions during Q4. Bharti Airtel (Airtel) is likely to add modest ~1 mn subscribers owing to SIM consolidation amid 2G base tariff hike. On the other hand, churn at Vodafone Idea (VIL) will continue with subscriber loss of ~4 mn. ARPU growth is expected to be muted across telcos as upgrades benefits will be offset by lower number of days in the quarter. We expect Jio, Airtel, VIL’s reported ARPU to be up 0.6%, 0.5%, 1% QoQ at ~Rs 179, Rs 194, Rs 136, respectively.

The network opex for top two telcos will go up with 5G rollout. Airtel India EBITDA margins are expected at 52.7%, flat QoQ, given the higher network opex on 5G rollout. Overall consolidated margins are expected at 51.1%, down 40 bps QoQ, owing to weak Africa margins. We expect PAT at Rs 2440 crore for Airtel. For Jio, we expect EBITDA margins at 51.6%, down 60 bps QoQ due to higher network expenses on account of 5G and net profit at Rs 4510 crore. For Vodafone Idea, we expect margins at 38.7%, down 70 bps QoQ. The company is expected to post a net loss of Rs 7960 crore. 

Our Perspective: 

One of the most awaited (and delayed) monitorable for the industry is tariff hike. We highlight that currently top two telcos (Jio & Airtel) are focusing on 5G network expansion. The thrust, therefore, is on getting more subscribers to upgrade and use more data under 5G. Thus, tariff hike in the near term looks remote. Nonetheless, delayed tariff hike would also accentuate the pain of Vodafone Idea and consequent churn is likely to accelerate as 5G picks up. This, could lead to optionality value for top telcos, going ahead. Commentary on overall outlook ahead by the companies would be the key monitorable.

Company Revenue  Change (%) EBITDA  Change (%) PAT  Change (%)
Bharti Airtel  35,946.1 14.1 0.4 18,370.3 14.5 -0.4 2,440.4 21.5 53.7
Vodafone Idea  10,519.1 2.7 -1.0 4,072.0 -12.4 -2.6 -7,960.2 NA NA
Jio 23,455.3 12.2 2.0 12,111.5 15.2 0.9 4,510.0 8.1 -2.8
Sterlite Technologies 1,851.6 17.0 -1.6 259.2 184.9 6.7 75.0 LP 49.9
Tata Comm 4,608.8 8.1 1.8 1,065.3 1.9 -1.1 330.1 -9.6 -16.2
Total 76,380.9 11.5 0.7 35,878.3 11.0 -0.2 -604.9 NA NA
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