Telecom companies to witness steady quarter - Telecom Q2FY23 preview

What’s Buzzing

We expect a stable quarter for telcos on the subscriber addition front. ARPU growth (higher number of days, mix improvement) and margins (partial benefits of lower spectrum usage charge i.e. SUC post new spectrum addition). 

Context

We expect Reliance Jio (Jio) to lead sub addition with ~7 mn net sub additions during Q2. Bharti Airtel (Airtel) is likely to add ~2 mn subscribers. On the other hand, churn at Vodafone Idea (VIL) is likely with subscriber loss of ~4 mn. ARPU growth is expected to be seen for all telcos, with benefits of an extra day during the quarter and some subscriber mix benefits. We expect Jio, Airtel, VIL’s reported ARPU to be up 3%, 2%, 2% QoQ at ~Rs 181, Rs 187, Rs131, respectively. Telcos are also expected to witness partial benefits of lower SUC emanating from their recent spectrum purchase, which will lead to QoQ margins expansion for Jio and Airtel. Airtel India EBITDA margins is expected at 51.9%, up 80 bps QoQ, aided by partial benefit of lower SUC. Overall consolidated margins are anticipated at 50.9%, up 50 bps QoQ. We expect PAT at Rs 2358 crore for Airtel. For Jio, we expect EBITDA margins at 50.4%, up 30 bps QoQ and net profit of Rs 4598 crore, up 6.1% QoQ. For Vodafone Idea, we expect margins at 41.4%, down 20 bps QoQ. For Tata Communications, we expect the gradual revenue growth recovery to continue, with data revenue expected to grow 2.1% QoQ (up ~8.6% YoY) at Rs 3409 crore. Data segment margins are expected at 29% (flattish QoQ) with overall margins expected at 24.8%, broadly flattish QoQ. 

Our Perspective

A favourable industry structure of three players (two being strong), government relief, tariff hike and fund raise has put top telcos (Jio, Airtel) in a formidable spot to maintain their leadership with strong digital ecosystem offering. Furthermore, we also expect ~15-20% tariff hike by all telcos in the near term to compensate for near term cash outflows as most incremental 5G benefits of industry use cases are still at least two to three years away.