Telecom Q4 Review: Uptick In Growth With High 5G Capex Expansion

However, the telecom sector has witnessed a 10 per cent slowdown in March quarter earnings growth which can be attributed to the absence of price hikes and the completion of a significant portion of the transition toward 4G subscribers. Additionally, the market share flux from Vodafone Idea to Reliance Jio, Bharti has subsided, resulting in limited gains in subscriber/ARPU growth due to SIMCARD consolidation.

Bharti Airtel clocked a 50 per cent jump in consolidated net profit at ₹3,006 crore for the quarter ended March 2023. This is against a net profit of ₹2,008 crore in the year ago period. Sequentially, it was a surge of 89 percent. Revenue from operations stood at ₹36,009 crore, up 14 percent from ₹31,500 crore reported a year ago.

While, Vodafone Idea reported a net loss of ₹6,418.9 crore, compared to a loss of ₹6,563 crore in the corresponding period last year. The telecom major's revenue from operations during the January-March quarter stood at ₹10,532 crore, registering a growth of three per cent, compared to ₹10,239 crore in the year-ago period.

Reliance Jio reported single-digit growth sequentially in the fourth quarter of FY23. The company garnered a consolidated net profit of ₹4,716 crore in Q4FY23, registering 1.7% QoQ and 13.01% YoY growth.

Post-tariff hikes and amid high competition, the telecom industry’s churn had surged over the last two years to 3-4% from 2% in FY21. However, in Q4, the churn for Airtel and VIL moderated slightly, leading to a q-q decline in SG&A costs.

Being in the early stage of the new 5G technology upgrade cycle,both Bharti Airtel and Jio continue to spend aggressively on 5G and rural densification, which is putting pressure on the near-term FCF and leverage.

"Capex remained elevated for Airtel and Jio as they continued to strengthen their networks with rural expansion and 5G rollouts. Subscriber growth accelerated a bit while 4G subscriber additions continued. Airtel and Jio saw c12% and 7% y-y 4G subscriber growth respectively,' said Kunal Vora of BNP Paribas.

“VIL’s cumulative capex over the last three years of ₹120 billion is well below Airtel’s ₹496 billion investment during the same period, which could make it more difficult for VIL to defend its market share going ahead, we think," he added.

Brokerage firm Motilal Oswal in its report said that Bharti Airtel has doubled its capex to ₹114 billion in 4QFY23 . VIL’s capex was far lower than Bharti and Reliance Jio capex due to its inability to raise funds. 

It noted that VIL’s provision continues to dent Indus margin as it has made provision of ₹434 million toward VIL’s doubtful debts; however, the provision amount has reduced from the heightened provision booked in 9MFY23 of Rs53 billion (Total provision made in FY23 - INR 53.5b). 

Both the brokerages have assigned a buy rating to Airtel.

“We continue to like Airtel as a play on digital infrastructure in India. While the timeline for the next tariff hike remains uncertain, we expect Airtel to report a strong India Mobile EBITDA CAGR of 15% over FY23-25, along with a decline in capex. We continue to see risks for Indus Towers with VIL’s inability to raise external funds, even though VIL has been able to pay its dues in 4Q. With rapid rollouts of 5G infrastructure, we expect operators to look for ways to monetize the high capex incurred in FY23 by raising tariffs for 4G services and ARPU lift from 5G subscribers," said BNP Paribas.

Updated: 02 Jun 2023, 05:31 PM IST