Revenue and EBITDA growth of Indian telcos in the financial year ending March 2021 (FY21) will slow due to lower data growth and weaker economic activity amid the coronavirus pandemic, noted Fitch Ratings in a report today.
The ratings agency however expects the pandemic led slowdown to largely impact low average revenue per user (ARPU) base. The telcos have been struggling to ensure this base is able to recharge their subscriptions since the lockdown was first implemented in late March.
“Notwithstanding the effect of the pandemic, we expect FY21 industry mobile service earnings before interest, tax, depreciation and amortization (EBITDA) to increase by about 15% yoy….as the industry will realise the full-year benefit of industry-wide tariff hikes of around 30%, effective from December 2019. Telcos' 4QFY20 EBITDA growth was driven by tariff hikes and 4G data growth, which we forecast to decelerate in FY21, as lockdowns were only implemented from 24 March 2020," noted the report.
Fitch forecasts Bharti Airtel’s FY21 Indian mobile segment's EBITDA to improve by 15%-20%, below previous expectation of 20%-25%, on lower data growth, as smartphone sales are likely to drop significantly in first half of FY21 as feature-phone users are unable to upgrade to 4G smartphones during the lockdowns. Fitch also lowered assumption of FY21 net subscriber addition to around 15 million, from 30 million, as users are unable to port their numbers during the lockdowns. “The pandemic-led economic slowdown will mostly affect lower-revenue users - those who spend ₹50-100 a month - which could prevent further improvements in monthly ARPU," said the report.
Airtel management said that data growth has increased by 20%-25% in the short-term as users work from home and upgrade to higher-ARPU plans. Telcos are counting on plans tailored for work from usage to drive some incremental revenue growth ove rteh next few quarters based on management commentary.
Airtel’s 4QFY20 Indian mobile segment revenue and EBITDA rose by 16% and 27% qoq, respectively, led by 14% growth in monthly ARPU to Rs154,10% growth in the 4G customer base to 136 million and 8% growth each in monthly data usage per user to 15GB and voice usage to 965 minutes. 4QFY20 ARPU was the highest of the previous 11 quarters, boosted by tariff hikes, as the overall subscriber base remained flat around 284 million.
Market leader, Reliance Jio, a subsidiary of Reliance Industries, reported sequential revenue and EBITDA growth of 6% and 11%, respectively, as ARPU growth was less pronounced, at 2%, to Rs131, below general industry estimates. This was due to the significant proportion of Jio's customers being on long-tenor plans, on which tariff hikes will be implemented only in 1QFY21. In addition, sale of incremental Jiophones led to slower growth in ARPU. Jio continued to gain market share at the expense of India's third-largest telco, Vodafone-Idea Limited, as it added 18 million subscribers to reach a customer base of 388 million, the industry's highest. “We expect Jio's FY21 mobile revenue to increase by at least 20%, led by higher monthly ARPU of INR147 and subscriber additions of 30 million," noted the report. Vodafone Idea is yet to announce its Q4 numbers.