Seasonal impact: Telcos may see flat ARPU growth in Q2
Analysts expect India mobile revenue for Airtel and Vodafone Idea to decline quarter-on-quarter (QOQ), given the weak seasonality in Q2.
However, consolidation of Tata’s consumer mobile business and increasing proportion of subscribers on bundled plans should reduce seasonality impact for Airtel. Telecom results will be flagged off with Reliance Jio announcing its numbers on Friday (October 18).
There is a possibility that floods and service disruption across some circles in the country would impact the earnings before interest, tax, depreciation, and amortisation (Ebitda) for telcos. Average revenue per user (ARPU) trajectory will be similar to the last quarter, with Jio remaining flat and Vodafone Idea and Airtel posting moderate growth.
“The July-september period is generally a seasonally weak quarter for Indian telcos. However, we expect seasonality to be pronounced this year due to floods in many parts of India during the quarter, leading to sequential declines in mobile Ebitdas for Airtel and Vodafone Idea,” said Varun Ahuja, research analyst, Credit Suisse.
It is expected that Airtel’s consolidated Ebitda will remain largely flat QOQ as decline in India mobile Ebitda will be offset by growth in Africa and other fixedline businesses.
Investors will, however, look for commentary on Airtel’s fixed line businesses after the launch of residential broadband services by Jio during the quarter. With remaining cost synergies likely to be back-ended, analysts expect Vodafone Idea’s adjusted Ebitda to decline by 7 per cent QOQ. It will also be the
first results presentation for Vodafone Idea’s new CEO Ravinder Takkar. Vodafone Idea may continue to lose market share and see a 3.8 per cent QOQ decline in subscriber base, leading to service revenue declining by 3.4 per cent QOQ. “We estimate Airtel to report India mobile revenue dip of 1 per cent sequentially, although YOY revenue growth should improve by 5 per cent.
For Vodafone Idea, we expect progress on network integration to result in lower subscriber losses, compared to the last quarter, but revenues will still decline 3.5 per cent sequentially with continued market share loss,” wrote Navin Killa, analyst, UBS Global Research.
The brokerage expects Jio’s Q2 revenue to grow 7.6 per cent sequentially on the back of almost 24 million net subscriber additions and flat QOQ ARPU growth, driving 11.5 per cent QOQ growth in Ebitda. The commercial roll-out of Jio’s fibre services is also expected to drag Ebitda despite revenue growth.
“Airtel’s subscribers should grow 3.3 per cent, while ARPUS are expected to dilute by 2.5 per cent on account of Tata Teleservices (TTSL) merger with Bharti, as TTSL had low ARPU customers (below ~50). Airtel’s India wireless Ebitda should decline 4 per cent to ~2,400 crore on lower revenues, partly offset by stable network and other costs,” reported Aliasgar Shakir, research analyst, Motilal Oswal.
Investors will keep an eye on subscriber movement across telcos to understand evolving market share shifts and across the broadband subscriber base of incumbents Airtel and Vodafone Idea. Jio’s network expense commentary will be a key metric to be watched, given the fibre service launch.