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Telecom Q4FY22 Preview: Tariff hike pass-through to drive ARPUs!
What’s buzzing:
Telecom companies would soon be announcing Q4FY22 results. Aided by tariff hike pass through to average revenues per user (ARPUs), telecom operators are likely to witness a sharp improvement in operating profits.
Context:
We expect subscriber addition momentum to be impacted amid SIM consolidation due to tariff hike. Reliance Jio (Jio), with lowest percentage of VLR (active subscriber) on network is likely to see major impact of SIM consolidation with ~5 mn net loss during Q4, while Vodafone Idea (VIL) is expected to witness a subscriber loss of ~2 mn. Bharti Airtel (Airtel) is likely to add ~2 mn subscribers and lead the industry. ARPU growth will be seen for all telcos, led by residual benefit of tariff hike. We expect Jio, Airtel, VIL to report ARPU to be up 8%, 12%, 12% QoQ at ~Rs 164, Rs 182, Rs 129, respectively. The lower ARPU growth for Jio is owing to larger share of long duration renewals. The ARPU growth is likely to percolate to margins for all telcos. Airtel’s consolidated margins are expected at 50.7%, up 150 bps QoQ. For Jio, we expect EBITDA margins at 50%, up 80 bps QoQ and for Vodafone Idea, we expect margins at 41.5%, up 220 bps QoQ, aided by higher ARPU. Among other companies, Tata Communication is expected to witness gradual growth (7% revenues growth for data segment) while Indus Towers is expected to witness a muted quarter.
Our Perspective:
The tariff hike benefits will drive the major growth in earnings for Telcos (~26% QoQ and ~174% QoQ growth for Jio, Airtel, respectively) in Q4FY22. Key to watch, going ahead, would be impact of sharp diesel prices on network operating costs (likely from Q1FY23), 5G spectrum auction reserve price recommendation by Trai and any further tariff hikes, which the industry has indicated.
Disclaimer – I ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec is acting as a distributor to solicit bond related products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.
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