Bharti Airtel Ltd’s June quarter (Q1FY25) results confirm the trend seen in rival telecom company Reliance Jio Infocomm Ltd. Both reported a healthy sequential growth in data usage per customer without much of a positive impact on average revenue per user, or Arpu.
As subscriber growth has flattened out and voice minutes are bundled with data, their focus moves on to driving the data consumption to boost Arpu.
While Jio has reported 6% quarter-on-quarter (QoQ) growth in average data usage per customer at 30GB, including fibre-to-the-home, it was 5% for Airtel at 23.7GB. Pricing per GB of data works out to less than ₹10 per GB if Arpu is divided by the average data consumption, one of the lowest in the world and likely to stay below ₹10 even after the recent tariff hike.
For like-to-like comparison, only 4G/5G users of Airtel are considered as 2G users don’t consume significant data. The higher data consumption of Jio users could also be owing to the free streaming of the ICC Men's T20 World Cup on Jio Cinema.
Despite the rise in data usage, the Arpu for both barely moved QoQ, with the number for Jio flat at ₹181 and Airtel marginally higher at ₹211. This indicates that the mere growth in data consumption may not mean much without the upward pricing of 5G over 4G, which can have a dual impact in the form of higher price per GB and higher data volume due to the faster browsing speed.
However, both companies have so far not revealed the pricing of their 5G plans even though the 4G tariff has been hiked. The 4G tariff hike has already been baked into the financials of the current quarter onwards. Therefore, further impetus to the shares of telecom companies can only come from the monetization of 5G.
Airtel’s India operations were steady last quarter. Arpu and the number of subscribers were up about 1% each, leading to revenue growth of 2.3% QoQ to ₹24,917 crore. The company’s operational efficiency continues to improve as network operation costs fell by 1% to ₹5,256 crore.
This was despite the rolling out of an additional 6,300 towers and 15,500 mobile broadband stations during the quarter. Profit before tax (PBT) was flat at ₹2,125 crore.
Its African business continued its weak showing due to currency devaluation. Its PAT (profit after tax, including associate companies) before exceptional items fell sequentially to ₹402 crore.
The management clarified in the earnings call that they would like to hold onto the robust operating cash generation in view of the industry’s capital-intensive nature. It may also consider repaying high-cost debt before rewarding shareholders in a big way. Its consolidated net debt is ₹2 trillion.
The annual free cashflow generation (Ebitda minus capex) is likely to be at least ₹40,000 crore for FY25 after factoring in the recent tariff hike. Thus, Airtel could soon see a rapid fall in its enterprise value (EV), which is market capitalization plus net debt.
The Airtel stock is quoting at EV/Ebitda of 12x based on Bloomberg consensus FY25 estimate. Simply put, even if this multiple remains constant, debt repayment would mean the substitution of debt with higher market capitalization. Ebitda stands for earnings before interest, taxes, depreciation and amortization.
In the long run, Airtel aims to lift Arpu of the mobile business in India to ₹300 from ₹211 now. Kotak Institutional Equities estimates that for every ₹10 increase in Arpu, the impact on Airtel’s consolidated Ebitda is ₹2,800 crore.
This means the potential increase in consolidated Ebitda could be about ₹25,000 crore at an Arpu of ₹300. In this backdrop, higher Arpu and 5G monetization will remain the key driver for the stock, which has gained about 40% so far in 2024.
