Telecom operators are likely to report sluggish financial results for the quarter ended March (Q4FY23) in the absence of price hikes and sequentially fewer days. Revenue and average revenue per user (ARPU) growth is expected to moderate. For example, BNP Paribas Securities India expects the domestic telecom industry’s revenue growth to decelerate to around 10% year-on-year in Q4 from 17.5% in the third quarter as the gains of the previous tariff hike get absorbed into the base. . The broking firm expects sequential revenue growth to moderate to 1.5%.
Adding subscribers is likely to be a mixed bag. Vodafone Idea Ltd is expected to continue losing customers in Q4. This can increase the number of customers of Bharti Airtel and Reliance Jio. For telcos, Arpu is an important metric to track, but the growth momentum for Q4 is unlikely to be exciting given the absence of a tariff hike. “Overall, ARPU improvement should improve with less benefit from 4G-led mixed gains,” analysts at Motilal Oswal Financial Services said in their earnings preview report. Reliance Jio from Vodafone Idea, which may even moderate Vodafone Idea, is now seeing good network experience.”
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Also, the benefit of lower spectrum usage charges on the EBITDA margin front will be relatively less in Q4, given that companies have already reaped a major chunk of profit in the last two quarters. Margins are expected to be flat sequentially.
To be sure, while expectations from Q4 results are low, telcos are likely to close FY23 on a good note. Kunal Vora, Head of India Equity Research at BNP Paribas, said, “The tariff hike taken in November 2021 has boosted industry revenue growth in FY23, and we expect industry revenue growth to pick up in FY23 despite moderation in Q4FY23.” Revenue growth will be strong at 17-18% growth.”
Going forward, tariff hike is paramount for revenue growth for telcos and a key trigger for telecom stocks. Unsurprisingly, investor hopes are pinned on a tariff hike in the new financial year (FY24). But the prospect of a tariff hike is bleak. As analysts at IIFL Securities Ltd noted in a report dated April 12, “Persistent weakness in consumption spending, increased competitive intensity in the light of Jio’s recent pricing interventions in the mobile post-paid and FTTH markets, and Jio and Bharti Opportunities for potential market-share gains Vodafone Idea’s delay in raising funds- has reduced the likelihood of a tariff hike in the near term.
Additionally, investor sentiment may remain calm as return ratios may remain under pressure. According to Vora, “Capital expenditure is set to continue in FY24 due to 5G deployment. Large investments in 5G spectrum and networks are set to weigh on near-term return ratios. There is a need for an increase in ARPU to see improvement in the return ratio.”
Against this backdrop, management commentary on capex and tariff hike for Airtel and Reliance Jio will be crucial when the telcos announce their Q4FY23 results. With Vodafone Idea’s survival dependent on fresh fundraising, any news flow on that will be important. Analysts at Emkay Global Financial Services say the fundraising is also necessary to ensure it doesn’t fall behind in the 5G race peers have already made headway on. From their 52-week highs, Airtel and Vodafone Idea shares have declined by 11% and 45%, respectively.
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Telecom tariff hike: Why urgency outweighs hardship
Telecom operators are likely to report sluggish financial results for the quarter ended March (Q4FY23) in the absence of price hikes and sequentially fewer days. Revenue and average revenue per user (ARPU) growth is expected to moderate. For example, BNP Paribas Securities India expects the domestic telecom industry’s revenue growth to decelerate to around 10% year-on-year in Q4 from 17.5% in the third quarter as the gains of the previous tariff hike get absorbed into the base. . The broking firm expects sequential revenue growth to moderate to 1.5%.
Adding subscribers is likely to be a mixed bag. Vodafone Idea Ltd is expected to continue losing customers in Q4. This can increase the number of customers of Bharti Airtel and Reliance Jio. For telcos, Arpu is an important metric to track, but the growth momentum for Q4 is unlikely to be exciting given the absence of a tariff hike. “Overall, ARPU improvement should improve with less benefit from 4G-led mixed gains,” analysts at Motilal Oswal Financial Services said in their earnings preview report. Reliance Jio from Vodafone Idea, which may even moderate Vodafone Idea, is now seeing good network experience.”
View Full Image
Also, the benefit of lower spectrum usage charges on the EBITDA margin front will be relatively less in Q4, given that companies have already reaped a major chunk of profit in the last two quarters. Margins are expected to be flat sequentially.
To be sure, while expectations from Q4 results are low, telcos are likely to close FY23 on a good note. Kunal Vora, Head of India Equity Research at BNP Paribas, said, “The tariff hike taken in November 2021 has boosted industry revenue growth in FY23, and we expect industry revenue growth to pick up in FY23 despite moderation in Q4FY23.” Revenue growth will be strong at 17-18% growth.”
Going forward, tariff hike is paramount for revenue growth for telcos and a key trigger for telecom stocks. Unsurprisingly, investor hopes are pinned on a tariff hike in the new financial year (FY24). But the prospect of a tariff hike is bleak. As analysts at IIFL Securities Ltd noted in a report dated April 12, “Persistent weakness in consumption spending, increased competitive intensity in the light of Jio’s recent pricing interventions in the mobile post-paid and FTTH markets, and Jio and Bharti Opportunities for potential market-share gains Vodafone Idea’s delay in raising funds- has reduced the likelihood of a tariff hike in the near term.
Additionally, investor sentiment may remain calm as return ratios may remain under pressure. According to Vora, “Capital expenditure is set to continue in FY24 due to 5G deployment. Large investments in 5G spectrum and networks are set to weigh on near-term return ratios. There is a need for an increase in ARPU to see improvement in the return ratio.”
Against this backdrop, management commentary on capex and tariff hike for Airtel and Reliance Jio will be crucial when the telcos announce their Q4FY23 results. With Vodafone Idea’s survival dependent on fresh fundraising, any news flow on that will be important. Analysts at Emkay Global Financial Services say the fundraising is also necessary to ensure it doesn’t fall behind in the 5G race peers have already made headway on. From their 52-week highs, Airtel and Vodafone Idea shares have declined by 11% and 45%, respectively.
Know your inner investor
Do you have guts of steel or are you a victim of insomnia regarding your investments? Let’s define your investment approach.
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