Telecom service providers closed the fiscal year 2012 with an impressive jump in revenue. Average revenue per user (ARPU), a key performance measure for telcos, was boosted by price increases in November.
Overall, FY12 net India mobile revenue grew 13% over the previous year, reaching an all-time high of $25.3 billion, driven by 11% growth in Arpu, an analysis by Jefferies India Pvt. Ltd. is shown on the basis of data published by Telecom Regulatory Authority of India.
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Bharti Airtel Ltd reported nearly 21% year-on-year revenue growth in FY12, followed by Reliance Jio with 18% growth, while Vodafone Idea Ltd (VIL) lagged behind.
However, the role of price escalation is not over yet and it continues to be a major catalyst for the sector. Telecom companies are already gearing up for this. In their March quarter earnings call, Airtel and VIL said they expect their respective near-term arps to be increased by Rs 200 without specifying a timeline. This would require another round of price increases.
VIL management recently told Mint that it aims to achieve Arpu’s level 350-400 in three to five years. In November, Airtel announced a 20-25% hike in prepaid tariffs.
Investors cheered as Airtel shares hit a 52-week high in November. Competitors VIL and Jio followed suit, increasing rates by up to 21%.
“We expect Jio to continue to participate in the tariff hike, as it needs to focus on profitability (and not just on subscriber growth) for its potential initial public offering over the next 1-2 years. Therefore, we believe that tariff hikes are likely to be more frequent,” analysts at JM Financial Institutional Securities Ltd said in a report on June 9.
In such a scenario, the sector could see a significant re-rating, said the JM Financial report.
Airtel will need another 15% hike in prices in the prepaid segment to reach its Arpu 200; The quantum of price hike will be higher for others,” said Piyush Pandey, an analyst at Yes Securities Ltd.
In Q4FY22, Airtel was leading the pack with Arpu 178. “However, we do not expect a price hike before the end of calendar year 2022, and the re-rating will be a gradual process. That said, given the premium quality of customers and strong network connectivity, the re-rating This will benefit Airtel more than others,” he said.
For VIL, unless there is meaningful capital inflow, the outlook is hazy. VIL’s expanded balance sheet needs improvement to compete with Airtel and Jio in 5G auctions.
Events related to 5G auction are also major triggers for telecom stocks.
Here, progress has been slow. The government is yet to decide on spectrum prices as telcos want further cuts. The auction of expensive spectrum means higher capital expenditure for telcos, which could be a concern in the near future for stocks.
“Spectrum pricing is important, but the ongoing dispute between telecom and technology companies regarding allocation of 5G spectrum could mean further delays in the auction. This may not necessarily be a bad thing for the sector. 5G devices in the country A gradual roll-out appears to be a plausible approach, given the limited availability of .
Meanwhile, diesel generators are also used to power mobile network towers, posing a threat to the margins. Analysts at IIFL Securities Ltd say that every 10% increase in diesel cost results in impacting mobile Ebitda margins of 25-40 basis points for telcos. One basis point is 0.01%.