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Telecom Q4FY22 Preview: Tariff hike pass-through to drive ARPUs!

ICICI Securities 07 Apr 2022

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.

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