TheNFAPost Podcast
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Bengaluru, NFAPost: As the country is reeling under Covid-19 pandemic business impact, revenue of telecom service providers through wireless services is likely to fall in the first quarter of FY 20-21.

According to reports by Arvian Research and Emkay Global Financial Services, the lockdown delayed recharges by low ARPU (Average Revenue Per User) prepaid subscribers primarily due to the reverse labour migration and impact on income levels along with curbed subscriber additions, SIM consolidation and absence of international roaming revenues.

“We expect ARPU to decline sequentially in Q1 FY21 after healthy growth in Q4FY20. Bharti (Airtel) and VIL (Vodafone Idea) are likely to see 5 per cent quarter-on-quarter (qoq) fall in ARPU. Home broadband to see a healthy increase in new connections, boosted by the lockdown,” it said.

Subscriber addition shall moderate due to the lack of smartphone sales in April and early May, the report said adding that the reverse migration could lead to subscriber loss for the industry due to delayed or no recharges.

Wireless revenues for the Bharti and VIL shall fall in Q1FY21 due to the nationwide lockdown, which resulted in; 1) delayed recharges by low ARPU prepaid subscribers on account of the reverse labor migration and impact on income levels, 2) minimal subscriber additions, 3) SIM consolidation, and 4) absence of international roaming revenues.

There is a wider expectation that ARPU to decline sequentially in Q1FY21 after healthy growth in Q4FY20. Bharti and VIL are likely to see ~5% qoq fall in ARPU. Home broadband to see a healthy increase in new connections, boosted by the lockdown. Airtel Africa should perform well as the impact of Covid-19 was minimal.

Subscriber addition shall moderate due to the lack of smartphone sales in April and early May. In fact, reverse migration could lead to subscriber loss for the industry due to delayed or no recharges. We anticipate Bharti’s subscriber base to decline by 7mn, while VIL, which has ~52% rural subscriber base, shall witness a more pronounced subscriber loss of 12mn.

Both operators shall see a minimal increase in data subscribers. For JIO, we are baking subscriber addition of 6mn on account of market share gains. Bharti and VIL have stringent subscriber accounting norms, in our view, which would result in a steep fall in subscriber base. Data consumption for Bharti/VIL/JIO is estimated to rise by 10-12% qoq, driven by underlying increase as new subscriber adds are expected to remain muted.  

Cost savings are expected from marketing, channel margins (lower gross additions and increased digital recharges) and other admin costs. Network opex shall continue to rise on increased utilizations. There could be some provisions on delayed payments in the Enterprise segment for Bharti and VIL.

Consolidated EBITDA for Bharti shall be flat sequentially, while we project VIL to post an 18% qoq decline, due to a drop in revenues and high base of 4Q. Reported finance cost might be lower based on moratorium on both deferred spectrum payment and bank loans while we have not accounted the same in PnL.  


■    Jio: Partial flow-through of the Dec’19 tariff hike in Q1FY21 would get offset by lockdown led delayed recharges, resulting to wireless revenues growth of 1% qoq. Lower contribution from international roaming would also restrict ARPU decline as compared to peers. We project subscriber additions to be compressed at 6mn and ARPU to decline 2% qoq, negatively impacted by the lockdown. Similar to Bharti and VIL, subscriber acquisition cost shall fall, leading to 114bps qoq expansion in EBITDA margin. Lower interest charge (post fund raise and debt restructuring in 4Q) shall aid PAT growth of 11% qoq.  


■    Bharti Infratel: Revenue is projected to stay steady qoq, backed by flattish growth in both, rental and energy re-imbursement. We expect tenancy additions to pick up, with consolidated tenancy ratio improving slightly to 1.84x. We are factoring in consolidated tower addition at a mere 213, which is significantly lower than its usual quarterly increment, as the same shall weaken on account of the lockdown. Additionally, we are penciling in a net tenancy addition of 1,127 as against 431 in Q4FY20, on account of lower exits from VIL. Energy margins shall continue to be volatile and will be squeezed 301bps sequentially.

With a strengthening balance sheet and better subscriber mix, Bharti remains our top pick in the sector. We hold a negative opinion on VIL and BHIN, with the former having too many variables in place to ensure survival (link to sector note), while clarity on Indus merger and VIL’s financial stability could provide a reasonable upside in BHIN.

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