The second quarter of this financial year (July-September) is likely to be a healthy quarter for the telecom companies, though the drivers would not be the same for all the operators.
Reliance Jio Infocomm’s performance would be driven by subscriber additions, while Bharti Airtel and Vodafone Idea Ltd (VIL) would benefit from normalisation post the lockdown and tariff hikes, according to a report by IIFL Securities.
“We expect 5% and 4% quarter-on-quarter EBITDA growth for RJio and Bharti Airtel on a consolidated basis, while VIL and Indus are likely to see flat EBITDA. With the relief package reducing the urgency around tariff hikes, we now build-in significant price increases only in the second half of 2022 versus the early-2022 previously,” IIFL Securities said in its October 12 note.
The urgency around the tariffs has come down with VIL’s near-term cash outflow significantly reduced. Though Bharti Airtel’s chairman recently talked about ARPU trending towards Rs 200 in FY22, he also added that it would not happen at the expense of competitiveness.
Higher User Churn, ARPU Recovery
According to Credit Suisse, a higher subscriber churn and Average Revenue Per User (ARPU) recovery for telecom firms, while tenancy renewals negotiations for Indus Towers will be a key focus.
“We expect the second quarter of FY22 to witness higher subscriber churn and 4.5-6% sequential ARPU growth for Airtel and VIL on actions on the minimum recharge plans and some recovery after the impact from the second wave of COVID-19 in Q1 FY22,” it said in a research note.
The brokerage firm expects Airtel’s revenue market share gains to continue in 2Q FY22; subscriber churn will likely increase in the quarter due to the negative impact from the raising of the minimum recharge plan in the second half of July 2021.
Credit Suisse expects VIL’s ARPU to grow 6% on a QoQ basis, given the churn of lower ARPU subs and uplift from an increase in minimum recharge plans, and estimate revenue growth of 1.6% QoQ (-13.8% YoY).
Momentum in Cellular Business
According to BofA Securities, cellular business momentum is expected to be steady for all telcos and expects RJio and VIL to show a 5% and 2% QoQ improvement in revenues.
“We expect EBITDA margins for RJio to be stable QoQ and slightly decline for VIL on the back of higher marketing and personnel costs. We expect a stable quarter for Indus Towers with +0.3% and 0.2% QoQ change in revenue and EBITDA,” BofA Securities added.
User Addition to be Mixed
According to a report by ICICI Direct Research, a mixed performance is likely.
“We expect the subscriber addition trend to be mixed for the industry, with industry leader RJio is likely to lead subscriber addition with about 15 million net adds in Q2. On the other hand, VIL is expected to continue experiencing churn, also impacted by last quarter’s tariff hike for 2G customers, which in our view, will drive consolidation,” ICICI Direct Research said in a research report.
For VIL, ICICI Direct Research expects subscriber loss of about 6 million. For RJio, reported ARPU is likely to be up 1% QoQ at about Rs 140, while revenues are expected to see 4.1% QoQ growth at Rs 18,734 crore.
For Vodafone Idea, with ARPU growth of about 6% QoQ at Rs 110, the brokerage firm expects overall revenues to grow 2.1% QoQ at Rs 9,347 crore.
