The recent tariff hike announced by the telecom operators would help to drive higher ARPU, and its effect would be seen in Q3 FY25, said domestic brokerage firm Centrum Broking in its latest report.
The brokerage observes that the average revenue per user (ARPU), a key performance metric for telecoms in the sector, is steadily increasing due to the migration from 2G to 4G and a growing proportion of postpaid customers. In the Indian wireless market, Bharti Airtel leads with an industry-high ARPU of ₹211 for the quarter, up from ₹209 in Q4FY24. Meanwhile, Jio reported a flat ARPU of ₹182 per month, remaining unchanged sequentially.
VIL reported an ARPU of ₹146, which was flat sequentially. The brokerage expects the SIM consolidation to be limited this time. However, there are signs of 2G users porting to BSNL, which has not raised its tariff plans.
It noted that both Airtel and Reliance Jio are expanding their 5G coverage to more cities, now reaching most districts across India. Reliance Jio has seen approximately 130 million subscribers transition to 5G, compared to 90 million for Bharti Airtel.
The report highlights that the implementation of 5G has significantly increased the data capacity of telecom operators, contributing to a substantial portion of total wireless data traffic.
Telecom operators have taken initial steps towards the monetization of the 5G rollout, as unlimited 5G is now available on only higher value recharges. There has been a return of some sort of stability to the telecom industry, led by telecom reforms in Sep 21 and tariff hikes in Dec 2019, Nov 21, and July 24, and that has led to a steady rise in industry ARPU.
After the completion of FPO, the Union government now holds around 24% of the equity stake in VIL. Vodafone Idea is in discussion with banks to raise debt capital of ₹250 billion, as it has announced capex plans of ₹500–550 billion over the next 3 years to improve its network capacity.
It has announced the launch of its 5G services in the next six months. The net debt at ₹2.0 trillion, at a net debt/EBITDA of 12x on FY24 EBITDA, remains high.
Indus Towers continues to see strong tower and colocation addition led by demand from the 5G rollout and one of the telecom operators investing significantly in expanding its rural coverage. It is expected that its receivables issue will see early resolution with the successful fundraising by VIL.
Meanwhile, the brokerage has an 'Add' rating on Bharti Airtel with a target price of ₹1577 apiece, while it has a 'Sell' rating on Vodafone Idea with a price target of ₹11 apiece and a 'Reduce' rating on Tata Communications with a price target of ₹1846 apiece.
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