Telcos may recover in Q2 with uptick in Arpu

More recharges, additions to the 4G network, and some reversal of SIM card consolidation seen during the lockdown, may lead to an increase in the Arpu of Bharti Airtel Ltd, Reliance Jio Infocomm Ltd, and Vodafone Idea Ltd (VIL) in the September quarter. This will help the telcos trim losses and post higher revenues, sequentially.

“We expect Bharti’s India wireless, VIL, and Reliance Jio’s revenue to increase 2.3%, 1.3% and 4.6% q-o-q, respectively," Motilal Oswal Financial Services analysts said in a report.

An improvement in wireless and enterprise business and an increase in home broadband subscribers could also drive up Airtel’s consolidated revenues for the quarter. The addition of new subscribers to both wireless and broadband segments will support Jio’s revenues.

“We expect Jio to report 5% q-o-q revenue rise led by steady q-o-q net adds (subscribers) and 2% q-o-q arpu uplift. Although small, the arpu uplift is also influenced by the fixed broadband revenue now added to cellular revenues," Bofa Securities said in a report.

Jio and Airtel are likely to see an improvement in customer base as well, while Vodafone Idea may arrest part of the subscriber churn because of the higher recharges by feature phone users and clarity on staggered payment of AGR dues.

“Bharti Airtel is likely to see sub (subscriber) growth of 4 million, VIL’s is set to dip by 8 million. But, given rising aggression from VIL post the AGR verdict, it may start adding subs from Q3FY21 itself," ICICI Securities said.

Though Vodafone Idea has 10 years to pay its AGR dues, analysts feel the Birla group company urgently needs another round of tariff hike.

“Despite the fund raise, Vi will require Arpu increase to meet its cash flow obligations in the long run. Without tariff increase, its cash from current fund raise (proposed ₹25,000 crore) will sustain operations till end of FY23. Tariff hike is needed to fund its financial obligations and capex plans (just even maintenance)," Axis Capital said in a report.

Vodafone Idea’s sustainability will also impact the business of Indus Towers Ltd, where Bharti Infratel Ltd holds 68.6% after the merger of the two tower companies in September. Voda Idea is the largest customer of Indus Towers.

Analysts at ICICI Securities said, “Bharti Infratel’s worst case would be shutdown of VIL, which will significantly impact its financials - tenancy, cash Ebitda and free cash flow will be cut by 34%, 47% and 46%, respectively".

Bharti Infratel, Airtel’s tower subsidiary, had expressed concerns during the June quarter results over Vodafone Idea’s survival. It had said the shutting down of Vodafone Idea could have an adverse effect on its business, operations and financials.