Telecom sector remains stable in Q2 – Jio and Airtel expected to gain strength, Vi weaker

• Analysts expect stability in the Indian telecom sector in Q2, with jio and airtel likely to further strengthen their position.
• The addition of 4G subscribers and lower spectrum usage rates are expected to boost telcos’ operational performance.
• The focus will also be on management commentary related to 5G capex and monetization plans, and rate hikes.

Additions of 4G subscribers and a small boost from lower spectrum usage costs (SUC) are expected to benefit India’s leading telecom players Trust Jio and Bharti Airtelwhile Vodafone Idea’s position could deteriorate despite a moderate increase in average revenue per user (ARPU), according to analysts.

The overall telecom sector is expected to report a stable quarter with 19% year-over-year revenue growth, according to BNP Paribas. However, on a sequential basis, the consensus forecast among brokers is 1-4% growth.

“However, quarter-on-quarter growth (2.4%) is likely to be weaker compared to the previous two quarters as the benefits of rate increases largely lag and subscriber numbers are likely to be muted,” according to a BNP Paribas report.

The 5G spectrum acquired by the three telcos will not attract SUC, reducing the total amount of these regulatory costs. However, since the airwaves were allocated in mid-August, brokers say the full benefits won’t be visible until the third quarter of this fiscal year.

ARPU growth remains subdued – another rate hike possible

ARPU, the amount of money telcos generate from each subscriber on average, is expected to see a moderate increase of 1-3%, mainly due to the higher number of days in the quarter. The brokers suggest that most of the benefits of last year’s rate hikes have already been reaped by the telcos.

Analysts at BNP Paribas and Edelweiss Research expect another rate hike in FY23, and Vi could lead the way in this regard. “The environment for rate increases is right and we will not hesitate to take leadership in price increases,” Vi’s then-CEO and now chairman Ravinder Takkar said at an analyst conference earlier in August.

Vi blede $10 million per day in the first quarter of FY23 and lost 15 million subscribers in the period. The telco reported a loss of ₹7,293 crore in the first quarter and a BofA Securities report expects it to deteriorate to ₹7,340 crore in the second quarter.

What to Look for in Management Commentary – 5G Capex, Tariff Increases

Among the key aspects of the management commentary are the telcos’ 5G capex and revenue plans, clarity on the increase in margins due to the lower SUC overall and details on the next round of rate hikes.

Brokers also expect Jio and Airtel to report new subscribers, while Vi is expected to lose 2-4 million subscribers in the quarter.

Earlier, a Nomura report suggested that telcos have two options to offset the expanded 5G spectrum purchases: raise prices for their existing subscribers by 4% or launch 5G services at a 30% premium.

For now, both Airtel and Jio are offering 5G services at no additional cost to their subscribers, but it remains to be seen which approach they will take when their 5G services are launched commercially.

$BHARTIARTL.NSE Multi-Year BreakthroughGood Earnings Expected in Third QuarterNext few quarters would be great given massive 5G adoptionAvailable at low risk entry Support: 778 Closing base Good for short to medium term Feel free to share

— (@CuriousCommunity) October 10, 2022

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