Telcos may report flattish revenues in Jan-Mar; tariff hikes, VI fundraise eyed

  • Analysts and brokerages tracking the sector say that the upcoming two quarters are likely to see upsides for the sector, as they expect tariff hikes by up to 20% after the general elections end in June.

Gulveen Aulakh
First Published14 Apr 2024
For Vodafone Idea, analysts expect a 1.6% drop in revenue sequentially, a 2 million subscriber loss and flat ARPUs as well as EBITDA margin..
For Vodafone Idea, analysts expect a 1.6% drop in revenue sequentially, a 2 million subscriber loss and flat ARPUs as well as EBITDA margin..(REUTERS)

Indian telecom operators Reliance Jio, Bharti Airtel and Vodafone Idea are expected to report largely steady revenues for the quarter ended 31 March, but the first half of the current fiscal year will see them put up a better show, buoyed by likely tariff hikes.

Indus Towers, a leading telecom infrastructure provider, is expected to report relatively better numbers, boosted likely by part-payment of its dues by Vodafone Idea.

Analysts and brokerages tracking the sector said that the upcoming two quarters are likely to see upsides for the sector, as they expect tariff hikes by up to 20% after the general elections end in June, spectrum auctions in the same month, and Vodafone Idea’s massive fundraise, including the 18,000 crore-follow on offer this week.

“We expect a stable set of numbers from India telcos, with 0-3% qoq (quarter-on-quarter) improvement in cellular revenues and largely flattish EBITDA margins,” said analysts at BofA Securities in a note.

Reliance Jio is expected to keep is subscriber-addition momentum going and to be better than in the quarter ended December 2023, with 11.5 million net additions. However, average revenue per user, or ARPU, for the March quarter is expected to be flat on a sequential basis.

ARPU is considered as a key metric for profitability of a telecom operator.

Airtel’s consolidated revenue is expected to rise 3.8% sequentially to 39,300 crore, with addition of 3.9 million subscribers and 1.6% improvement in ARPU, owing to premiumization and addition in broadband subscribers. Ebitda (earnings before interest, taxes, depreciation, and amortization) margin may improve 71 basis points sequentially to 53%.

For Vodafone Idea that will launch its FPO on 18 April to raise 18,000 crore from retail as well as institutional investors, analysts expect a 1.6% drop in revenue sequentially, a 2-million subscriber loss and flat ARPUs as well as Ebitda margin. The funds that will be channeled towards launching 5G service and enhancing 4G coverage will help Indus Towers, as it will get payments and pending dues from the carrier. Analysts at BofA suggested that Vodafone Idea may also clear some backlog payments. Indus’ revenue growth in January-March is expected to be around 6% sequentially, even as tenancy additions get marginally slower and tenancy ratio - the average number of tenants or operators using a tower - stays at 1.71x.

“Tariff hikes are likely to happen in the next few months post elections, we see possibility of 15-20%,” BofA Securities said. Carriers raised headline tariffs by 20%– 40% back in December 2019, the first after Jio launched its services in 2016 and made voice a free service. This was followed by another hike, this time of 20%, in December 2021.

“We expect the industry to take 15%–17% tariff hike post the elections. The previous hikes have provided an ARPU uplift of 30 and 36 over four quarters,” analysts at Antique Stock Broking said in a note initiating coverage on Airtel, giving tariff hike as one of the factors of upside to the stock in the near and long term.

“It's rather an attempt by the operators to improve ARPU that will in return help recover the investments made on 5G,” said Faizal Kawoosa, founder of research firm TechArc. He noted that telcos have already invested billions in 5G and were yet to reap benefits due to the absence of relevant use cases that consumers as well as enterprises could pick up and pay for. “The investment burden has got shouldered on the operators. They now have every right to take a pause and emphasize on recovering the investments and make profits,” he added.

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