With the first quarter (Q1) results around the corner, telecom analysts expect sector average revenue per user (ARPU) to grow marginally.
Analysts also expect the impact of debt reduction and the subsequent decline in finance charges of the operators to start reflecting from Q1 of 2019-20, while major reduction would be visible from the next quarter.
“ARPUs for Bharti Airtel and Vodafone Idea are estimated to increase by 3 per cent and 8 per cent quarter-on-quarter (QoQ), respectively. The differential in ARPU increase is an outcome of subscriber losses and marginal benefit accruing from the mix change,” noted a report by Emkay Securities.
Further data volume growth is expected to remain steady at 8-11 per cent sequential growth for both Bharti and Vodafone Idea. The mix change with data subscriber additions and subscriber loss should aid ARPU increase. Strong subscriber additions for Reliance Jio are expected to continue, along with market share gains.
Airtel Africa is expected to continue to record revenue growth of up to 1.7 per cent sequentially. Some analysts also think Airtel may surpass Jio in ARPU, as they were almost neck and neck in the past quarter. And with a slowdown in ARPU growth for Jio, Airtel may gain.
Vodafone Idea’s wireless revenue, however, is expected to dip by 1 per cent sequentially. Its earnings before interest, tax, depreciation and amortisation (Ebitda), however, is expected to see a boost in Q1; analysts expect a 7 per cent QoQ rise, driven by sustained cost synergies.
Morgan Stanley analyst Parag Gupta noted in a recent report that while Airtel ARPU is expected to increase 2.6 per cent over the quarter, Jio ARPU is expected to remain flat, although the subscriber base is expected to cross 330 million.
“We expect Jio ARPUs to remain flat, leading to 7 per cent QoQ revenue growth. Operational expenditure (opex) is likely to increase, as network costs flow through from the infrastructure investment trust (InvIT) structure and hence, we expect Ebitda margin to come down to 33.6 per cent (down 536 basis points QoQ) and Ebitda maybe lower on a QoQ basis,” wrote Gupta.
A recent report by Bank of America Merrill Lynch estimates Jio’s fibre to be a high Ebitda margin business valued at about $14.3 billion.
Airtel wireless margins could improve to 23 per cent (versus 22 per cent adjusted margins in fourth quarter of 2018-19 due to one-off cost reversal) as incremental margins improve despite continued investments in network and other opex. Overall, Airtel is expected to report consolidated revenue growth of 1.7 per cent QoQ and reported Ebitda to decline 1 per cent QoQ.
The key issues to watch out would be how far the incumbent telcos are managing to convert subscribers to broadband users in order to drive growth. Further, merger-related cost saving will be a key monitorable for Vodafone Idea, as it is expected to support Ebitda. In addition, investors will look out for Jio’s Ebitda due to increase in network and opex after the demerger of fibre and tower assets into an InvIT structure as well as updates on fibre-to-the-home business.
Jio continues to top AGR growth in Jan-March quarter
Reliance Jio continued to top the chart of telecom performance with Rs 9,838 crore in adjusted gross revenue (AGR). However, after a year of rapid growth, telecom traction in rural India has been on the decline in 2019, Telecom Regulatory Authority of India (Trai) data for the January March quarter shows.
Jio's AGR grew 3.76 per cent (much slower than past performance) during the said quarter, compared to Vodafone Idea, whose AGR dropped by 1.25 per cent and Airtel plunged by -8.07 per cent. BSNL showed a surprise 16 per cent growth during the quarter. Jio holds the top position with 48.17 per cent of market share of internet users, followed by Vodafone Idea with 22.98 per cent. While urban users continue to rise, rural India has witnessed a shift of 17 million users, while only 3 million urban users were added over the last quarter.