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Q1FY22 Preview: Muted quarter

Wireless revenues for the quarter are anticipated to be relatively tepid, dragged down by

1) sluggish smartphone sales which were hit by localized lockdowns;

2) free recharges doled out by companies for the bottom-of-the-pyramid subscribers; and

3) an overall moderation in subscriber additions. On the subscriber addition front, Jio is expected to outpace Bharti with 5mn adds, while Bharti’s subscriber base is assumed to be flat sequentially. Jio’s outperformance would be partially driven by the full impact of JioPhone tariffs launched in Feb’21. VIL is expected to see a contraction of 4mn in its subscriber base along with a 2% decline in ARPU.

* After being impacted in Q4 by the transition to the zero-IUC regime and lower number of days, Bharti’s ARPU is likely to be stable sequentially as mix improvement and higher number of days will get offset by the impact of free recharges offered to low income subscribers. Data subscriber additions should stand at 1.6mn – significantly lower than the quarterly average of 10mn in the last four quarters. VIL’s data subscriber base is expected to contract by 1mn.

* Bharti’s consolidated EBITDA is estimated to rise 1.5% qoq. Although Africa’s performance is expected to be impacted by the weakening of the Naira and other currencies, once again, the permission for the recommencement of new subscriber enrolments in Nigeria should aid subscriber additions. VIL’s EBITDA is likely to remain flat qoq after adjusting for the one-off in network and IT costs amounting to Rs4.5bn in Q4.

* Jio: Revenues are forecasted to rise 1.4% qoq, supported by subscriber additions of 5mn – lower than the average of 9.7mn in the last four quarters. ARPU is projected to stand at Rs137 (-1% qoq). EBITDA is expected to increase by 1.6% qoq.

* Indus Towers: Revenues are projected to rise 3% qoq, boosted by a 6% jump in energy reimbursements, driven by the rise in diesel prices. On the other hand, rental revenues should increase 2% sequentially. Energy margins are forecasted to break-even after a few quarters of negative margins. After posting the highest-ever tower additions for two consecutive quarters, we expect momentum to persist with 2,500 tower additions. Tenancy additions should moderate sequentially, and are estimated to come in at ~2,970, with most of it being backed by Bharti.

* Tata Communications: The high base in the previous year on account of increased adoption of data solutions fueled by the WFH trend, along with continuing challenges in deal conversion, should result in a subdued quarter. We are projecting revenues to dip 7% yoy while staying stable sequentially. Both the data and voice segments should register an uptick in revenues, with the latter seeing a 1% qoq increase on accelerated decline in Q4. On the EBITDA front, margins are likely to contract 30bps qoq as cost inflation kicks in. PAT should be impacted and is projected to decline 8% qoq due to higher ETR and the normalization of other income, as Q4 saw an increase in dividends from investments.

* We continue to remain constructive on Tata Communications and Bharti Airtel (from a medium term perspective). Our positive stance on Bharti is underscored by market share gains across segments, healthy subscriber additions and potential FCF generation along with tariff hike. In the case of TCOM, the upward revision in financial targets after meeting 2 of the 3 goals highlighted last year, along with balance sheet deleveraging, cost optimization measures and impending revenue recovery, supports our view.

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