Telecom firms to see business recovery, revenue growth in Q2: Analysts

However some of these gains will be offset by increased spends on commissions and marketing

Telecom operators are expected to report sequential improvement in revenue for the September 2020 quarter (Q2FY21), thanks to higher mobile recharges and migration of 2G customers to 4G services.
 

However some of these gains are likely to be offset by higher spends on commissions and marketing, say analysts.
 

The July-September period is seasonally weak for telcos, but there have been a few growth triggers this year.
 

According to Axis Capital, the increase in recharges across urban regions — on account of work from home and reverse migration of labourers to cities — will help operators reverse the decline in subscriber addition witnessed in the first quarter.
 

The shift to 4G, longer tenure plans, and traction in digital recharges will provide a boost.
 

Airtel will report its results on Tuesday, while Vodafone Idea and Reliance Jio are scheduled to announce their quarterly numbers on Thursday and Friday, respectively.
 

Telcos implemented tariff hikes last December, but have shied from raising prices since then. While the last tariff hike will reflect in improved performance on a year-on-year (YoY) basis, any sequential growth in revenue will be attributable to business recovery.

“The first quarter was adversely impacted by validity period extensions made to low-income subscribers, disruption in offline top-ups, and negligible smartphone shipments in April and May. The first two factors completely normalised in Q2. Shipments have resumed since June, though weak consumer sentiment has kept these below pre-Covid levels,” said IIFL Securities in an investor note.
 

B&K Securities expects Airtel’s average revenue per user or ARPU to rise 2 per cent sequentially, and 25 per cent YoY, to Rs 160.

Jio’s ARPU is expected to rise 4.3 per cent sequentially and 21.9 per cent YoY to Rs 146.
 

Vodafone Idea’s ARPU is expected to rise 10 per cent sequentially and 17.2 per cent YoY to Rs 125.
 

Data volume will come in higher sequentially, thanks to increased penetration of broadband and use of video applications during lockdown. 
 

B&K Securities estimates Jio’s subscriber base to increase by 12 million, while Voda Idea is expected to see a further 6 million loss in subscribers over the first quarter.
 

According to B&K Securities, Airtel is expected to report 4.6 per cent sequential revenue growth (compared to 1 per cent in Q1FY21), led by ARPU growth in its India wireless business and uptick in the enterprise segment. Voda Idea is expected to report revenue growth of 6.2 per cent sequential (compared to de-growth of 9 per cent sequential in Q1FY21). Other brokerages such as IIFL Securities and Emkay Global are estimating flat revenue growth and 4-6 per cent decline in earnings before interest, tax, depreciation, and amortisation for Voda Idea due to higher marketing spend on branding.