Anticipate moderate growth with elevated capex

Earnings growth to soften; market share shift may moderate

After reporting a healthy earnings growth over the last 10-12 quarters, growth in 4QFY23 earnings is likely to moderate – particularly for Bharti and RJio – in the absence of any significant price increase or SUC reduction. Bharti took price hike for the 2G minimum charge plan of INR99 to INR155 but that may see limited gains. Overall, ARPU improvements should moderate with lower gains from 4G-led mix benefits. Over the last few quarters, we saw sharp market share gains by Bharti and RJio from VIL, which too may moderate given VIL now seeing decent network experience. Sim card consolidation may continue and subsequently, we expect 1-2% ARPU increase across the telcos, driving 2-3% sequential revenue growth for Bharti and RJio and flat revenue for VIL. The improvement in blended ARPU is backed by: a) device upgrades – shifting to 4G from 2G, b) premiumization – shifting to higher data plans/postpaid, and c) data monetization.

Subscriber shift to Bharti/RJio from VIL would continue

We expect 1-2% increase in subscribers for RJio and Bharti and 1% decline for VIL during the quarter. VIL may continue to lose market share with 3m subscriber loss in 4QFY23, driving gains for Bharti and RJio. There could be an increase in 4G subscribers for all the three telecom companies, which could support the rise in blended ARPU. Bharti and RJio are now offering unlimited 5G data to the users with INR239 and above recharge, which could attract more 4G/5G customers.

ARPU growth will increase the margin; No SUC reduction benefit

The full benefit of a reduction in SUC charges seen in the last couple of quarters is now built in the EBITDA; hence, we do not expect any further margin improvement. Further, moderate revenue growth would lead to limited incremental EBITDA margin (unlike the typical 60-80% seen in the last few quarters). Subsequently, we expect 3% QoQ EBITDA growth for RJio and Bharti (India Mobile) each with margin expansions of 40bp and 10bp, respectively, to 53% and 54%. VIL, on the contrary, given its market share loss and higher marketing cost to restrict churn, should post 1% EBITDA growth (pre IND-AS 116) with a margin improvement of 30bp to 19%.

Capex likely to remain elevated

Since both RJio and Bharti have expanded their 5G coverage to 406 and 265 cities in Mar’23 from 66 and 70 cities in Dec’22, respectively, we expect their capex to remain elevated in 4QFY23 and may increase further from previous quarters. RJio is planning to roll out 5G telecom services across India by Dec’23 using standalone architecture, while Bharti is planning to cover the urban cities by Mar’24 using nonstandalone architecture. VIL’s 5G plans depend on its fundraise. It also plans to use the non-standalone architecture for its 5G rollout. Bharti’s management expects INR750b capex in the next three years with front-loading in the initial period. RJio plans to invest INR2t to develop its network (including INR881b for the spectrum).