Telcos remain a safe bet amid Covid-19 disruption

Led by Bharti Airtel, telecom service providers have been among the biggest gainers in the telecom space over the last few trading sessions. This is on expectations that tariff hikes in the previous quarter and floor tariffs will help them offset the hit on revenues and subscribers amid the ongoing lockdown. Bharti has gained over 9 per cent over the last four days.

Analysts at Emkay Research believe that telecom remains one of the safest spots in the current scenario. Telecommunications is one of the few services that have been exempted from the purview of the lockdown. While brokerages have cut subscriber estimates for telcos, such as Bharti and Reliance Jio, they have not reduced the average revenue per user (ARPU) estimates. They have cut Jio’s net subscriber addition for the March quarter to 14 million from the earlier estimates of 19 million. Though the shutdown is expected to dent subscriber additions, analysts believe that tariff hikes up to 30 per cent in December should help offset some of the hit on the revenue front.

Analysts at CLSA believe while the risk of lower-end subscriber downtrading and dual SIM reduction cannot be ruled out, there will be a likely spurt in usage, especially among data users who account for about half the Bharti Airtel’s 283 million customer base. Further, 4550 per cent of its recharges are done online, which is a positive.

The other positive could be the implementation of floor tariffs as requested by telecom operators. This could lead to a 50 per cent jump in tariffs and thus help improve realisations and average revenue per user. Motilal Oswal Financial Services expects Bharti Airtel’s operating profit to increase 15 per cent in FY21 to ~40,000 crore and with incremental growth coming from ARPU or market share gains. The nearterm trigger for telcos is the outcome of the ongoing hearing in the Supreme Court on payment relaxation for adjusted gross revenues.