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4Q Preview: Tariff hike to boost earnings despite muted subs addition

We expect 4QFY22 to be a strong quarter for telecom companies with likely revenue and EBITDA growth of 6-11% QoQ due to the impact of ~20% tariff hike undertaken by the industry in Nov’21. However, the industry is witnessing outsized churn in the lower ARPU segments given the entry level prepaid tariff hike in Jul’21, followed by another sharp hike in Nov’21. Hence, it is likely to continue to witness muted subscriber (subs) addition and limited upgrades to high APRU MBB (3G/4G) plans. We expect Jio’s net subs to decline by 8mn in 4QFY22; however, we expect its ARPU to rise 9% QoQ at INR 165, driving 6.6% growth in revenue and 5.4% QoQ growth in Jio EBITDA. For Bharti, we expect subs addition at only ~2mn and ARPU to rise 11% QoQ at INR 180 driving 10-11% growth in India wireless revenue and EBITDA. We expect VIL’s subs losses to continue; however, its ARPU is likely to rise 11% QoQ to INR 127. We expect net tenancy additions for Indus towers to be robust at ~3.4k.

Bharti remains our top pick (TP of INR 930) as we expect tariff hikes to be more frequent, going forward, with Jio more willing to participate in tariff hikes given that it also needs to start focussing on profitability. We maintain HOLD on Indus Towers (TP of INR 270) due to duopoly risks and a SELL on VIL (TP of INR 9) due to concerns around survivability

Jio’s net subs to decline by 8mn in 4QFY22; ARPU to rise 9% QoQ at INR 165: We expect Jio to report a net decline of 8mn subscribers in 4QFY22 (TRAI’s Jan’22 subscriber data showed 9.3mn net subscriber decline for Jio in Jan’22) – this is in continuation of net subscriber decline of 9mn/11mn in 3QFY22/2QFY22 due to repurposing of customer retention efforts for low-ARPU subscribers. However, ARPU is likely to rise by 9% QoQ to INR 165 in 4QFY22 led by ~20% tariff hike in Nov’21, though part of this tariff hike is likely to flow in the next 1-2 quarters as a significant proportion of subscribers are on longer validity plans. APRU growth is also likely to be supported by improving subscriber mix given the gradual decline in low ARPU subscribers. Further, strong traction in FTTH additions is likely to continue with addition of ~0.7mn. We expect 6.6% QoQ growth in standalone Jio revenue to INR 208bn, with overall Digital EBITDA expected to grow 5.4% QoQ to INR 108bn.

Bharti to add 2mn wireless subs, ARPU to rise 11% QoQ at INR 180: Bharti is expected to add only ~2mn subscribers in 4QFY22 due to the impact of sim consolidation post the Nov’21 tariff hike, though MBB subscriber addition is likely to be slightly better at ~4mn. However, ARPU is expected to jump 11% QoQ to INR 180 (vs INR 163 in 3QFY22) due to the impact of ~20% tariff hike taken in Nov’21. We build in 10.6% QoQ growth in the India wireless business to INR 178bn, with EBITDA growth of 9.9% QoQ to INR 87bn. Enterprise business is also expected to post a healthy growth of 2.5%, while we expect steady additions in FTTH (~0.3mn subscriber addition QoQ).

VIL’s subs losses likely to continue; however, ARPU to rise 11% QoQ to INR 127: We expect VIL’s subscriber loss trend to continue, with subs declining by ~6mn in 4QFY22 (had witnessed decline of 6mn/2mn/12mn in 3QFY22/2QFY22/1QFY22) due to impact of sim consolidation post Nov’21 tariff hike and migration of subscribers to other telcos. However, we expect ARPU to rise 11% QoQ to INR 127 in 4QFY22 (vs. INR 115 in 3QFY22) due to the impact of ~20% tariff hike taken in Nov’21. We expect revenue to rise 7.2% QoQ to INR 104bn; EBITDA is likely to grow ~10% QoQ to INR 42bn.

Net tenancy additions for Indus Towers robust at ~3.4k: We build in a robust ~3.4k net tenancy additions in 4QFY22 for Indus Towers vs. an average of ~4k net tenancy additions in the previous 6 quarters. Overall rental revenue growth (including exit charges) is expected to remain flat QoQ at INR 43.8bn due to tapering off of exit charges. We expect overall revenue to grow marginally QoQ to INR 69.9bn due to higher Energy revenue driven by higher fuel costs. Overall EBITDA is expected to grow marginally QoQ to INR 37.2bn.

Bharti remains our top pick; maintain HOLD on Indus and SELL on VIL: We marginally tweak our revenue/EBITDA estimates for Bharti and VIL incorporating the updated TRAI’s subscriber data and fine tuning our ARPU estimates; we raise our TP for Bharti to INR 930/share (from INR 900). For Indus Tower, we reduce our TP to INR 270/share (from INR 300/share) due to moderation in our long-term tenancies growth assumption. Bharti remains our top pick (TP of INR 930) as we expect tariff hikes to be more frequent, going forward, with Jio more willing to participate in tariff hikes given that it also needs to start focussing on profitability. We maintain HOLD on Indus Tower (TP of INR 270) due to Duopoly risks and a SELL on VIL (TP of INR 9) due to concerns around survivability

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