Why analysts are expecting telecom revenues to improve in Q1 FY25

Indian telcos are expected to report higher average revenue per user (ARPU) for the quarter ended 31 June, driven by the structural uptrend being observed in industry ARPU, even as the impact of recently announced tariff hikes by Reliance Jio, Bharti Airtel and Vodafone Idea starts to kick in from this quarter onwards.

Per user revenue is a key metric of profitability and financial health for telecom service providers.

Sequential growth in revenues and earnings before interest, tax, depreciation and amoritsation (Ebitda) is expected for all the carriers, skewed more towards the better performing Reliance Jio and Bharti Airtel. 

However, Vodafone Idea’s earnings is likely to show muted growth as it continues to lose subscribers, brokerages tracking the sector stated in separate research notes on Tuesday.

Also read: Airtel, Jio tariff hikes: Is telecom sector ripe for rerating? Experts weigh in

“We expect ~2% qoq (8% yoy) growth in combined wireless revenue for the three private telcos, driven by 10 mn (1% qoq) higher subscriber base, largely led by continued strong net adds for R-Jio,” sector watchers stated in a report from Kotak Institutional Equities. 

“We expect blended wireless ARPU to inch up modest ~0.5% qoq (up ~3% yoy) driven by the continued subscriber mix improvement for Bharti/Vi and rising FTTH (fibre to the home) contribution for R-Jio,” the report added.

Analysts at Morgan Stanley pegged the potential growth in the industry's ARPU over the next two quarters at 16-18%. “However, it will be important to see the net impact given the possibility of some downtrading as well as increased subscriber churn (owing to SIM consolidation),” they said, adding that moderating trends in capex would be the key to watch out for in the first quarter of financial year 2024-25 (Q1 FY25).

With the telcos having rolled out tariff hikes across a wider segment of subscribers, and Jio kickstarting 5G monetization, ARPU growth for Bharti and Jio would be 14% and 17%, respectively, in the next 12 months, noted sector experts at Axis Capital.

Also read: Tariff hike to boost revenues of telecom firms by 15%; Citi upgrades Vi to buy

Further, a research note by JM Financial Institutional Securities, pegged Jio and Airtel's EBITDA growth at 2-3% in the first quarter, driven by robust subscriber additions and upgrades in mobile broadband plans, which will lead to higher ARPUs.

“We expect a structural uptrend in industry ARPU, 10-12% CAGR to ~INR 300 in the next 3-4 years, given the consolidated industry structure, and higher ARPU requirement for Jio also to justify significant 5G capex and given Jio's potential initial public offer (IPO),” analysts at the firm noted in a research report seen by Mint.