Telcos to ring-in profit gains; Airtel leads the pack in September quarter


It was a foregone conclusion that Indian private telecom companies would do well in the September quarter (Q2FY25) thanks to the tariff hikes taken in July and the ongoing premiumization trend of SIM card upgrades. This has played out with aggregate wireless revenue for the three private telcos—Reliance Jio Infocomm Ltd, Bharti Airtel Ltd’s India arm, and Vodafone Idea Ltd—rising by 8% sequentially.

“Driven by the partial flow-through of tariff hikes, blended wireless average revenue per user (Arpu) improved about 9% for private telcos, with Bharti leading with about 11% quarter-on-quarter uptick, followed by Jio and Vodafone with about 7% quarter-on-quarter improvement each,” said Motilal Oswal Financial Services. 

Companies undertook about 10-20% tariff hikes in July. The hikes usually start late for postpaid subscribers and customers with longer-tenure pre-paid plans. Thus, Ebitda margins and Arpus are expected to improve further in the second half of FY25 as tariff hike gains materialize fully. In Q2, Ebitda margins of the three companies were up 50-160 basis points (bps) sequentially. Ebitda stands for earnings before interest, taxes, depreciation, and amortization.

An era of pricing-led growth

Of course, some would benefit more. For instance, higher capital expenditure, increasing debt burden, and eroding customer bases are likely to keep margin gains for Jio and Vodafone Idea under check. However, Airtel is likely to be the biggest gainer here thanks to its premium customer mix and better network quality and services.

“Since the Indian telecom industry is in an era of pricing-led growth, customers are willing to pay more in expectation of better quality of services. And Airtel is in a relatively better position to make the most out of this situation,” said Vivekanand Subbaraman, lead analyst for telecom, oil, gas and media at Ambit Capital.

Perhaps this explains why Airtel lost the fewest customers to SIM consolidation in Q2FY25, with a subscriber loss of 2.9 million. In comparison, Vodafone lost 5.1 million subscribers, and Jio, which caters to the masses and has more price-sensitive customers, lost around 11 million subscribers. Vodafone said it had lost subscribers to the government-backed Bharat Sanchar Nigam Ltd (BSNL), the impact of which has been receding now.

Meanwhile, Jio’s relatively value-oriented customer base, coupled with the large expenditure on its pending commercial 5G launch, is expected to weigh on its profitability. Still, the situation is worse for Vodafone, which has consistently lost 2.8 million customers on average in the last four quarters due to the massive gap in its 4G coverage. As smartphones continue to penetrate rural India, customers upgrading to 4G from 2G networks are often left to choose between Jio and Airtel.

To recover lost ground, Vodafone Idea plans to spend 8,000 crore in H2FY25 after spending 2,100 crore in H1FY25 on 4G coverage expansion. “We expect the pace of subscriber loss to decline in FY26 and Vodafone Idea to return to a modest growth path in FY27, underpinned by investments for expanding 4G population coverage and 5G roll out,” said a Nomura Global Markets Research report on 14 November. 

But Vodafone’s crushing debt burden continues to eat away its profitability, as the company reported a 13% sequential increase in its net loss at 7,176 crore due to increased interest costs of 6,600 crore in Q2.

In this backdrop, Vodafone’s shares have lost as much as 55% so far in 2024, while Airtel’s shares have risen 55%. For Airtel, another tariff hike as and when it happens would be a trigger. Meanwhile, Reliance Industries Ltd, Jio’s parent, has offered almost no returns during this time.



Source link

Leave a Reply

Your email address will not be published. Required fields are marked *

Prayer Times