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Macro-model: Expect industry revenue CAGR of 12% over FY23-FY26E

We have revisited our industry macro-model to realign our assumptions for next three years. We now expect industry AGR (incl. NLD) CAGR at 12% to INR 3,065bn over FY23-FY26E (vs 15.4% CAGR over FY20-FY23). Our assumption bakes-in organic growth of >6% CAGR and one tariff hike of ~10% in FY25E. Bharti’s AGR market share is likely to jump 125bps in the same period to 37.5% (vs +545bps to 36.2% in past three years), and RJio’s by +110bps to 42.5% (vs +690bps to 41.4%). This means Bharti and RJio’s AGRs are likely to grow at CAGRs of 13.2% and 12.9% respectively over FY23-FY26E. We believe revenue growth for Bharti / RJio faces upside risk from better data monetisation driven by 5G offtake, higher-than-expected tariff hike(s) and better-than-estimated market share win.

Our conservative estimates of AGR growth appear healthy and can drive much higher EBITDA and FCF generation. We remain constructive on Indian telecom space; retain BUY on Bharti.

Industry AGR likely to register 12% CAGR over FY23-FY26E

Indian telecom industry’s adjusted gross revenue (AGR, incl. NLD) registered a CAGR of 15.4% over FY20-FY23 to INR 2,188bn. This was driven by ARPU (based on AGR, and total subs) growth of 15.9% to INR 160 in the same period. Subs base dipped during this period. ARPU benefited from: 1) two tariff hikes (one in Dec’19 by ~25%, and another in Dec’21 by ~15%, on blended basis). Conversion in the first tariff hike was severely impacted by SIM consolidation, while the second hike had good flow-through to AGR; 2) 2G to 4G conversion; 3) acceleration in postpaid customer addition; and 4) data monetisation.

We anticipate industry AGR to grow at a CAGR of 12% to INR 3,065bn over FY23-FY26E. This will be driven by ARPU CAGR of 10%. ARPU growth will be supported by: 1) blended tariff hike assumption of ~10% in FY25E; and 2) >6% CAGR growth from premiumisation and data monetisation. Nonetheless, industry AGR performance in past few quarters has shown organic growth (defined as AGR growth without tariff hike) can potentially sustain at much higher levels if operators execute better data monetisation.

Further, we have not assumed 5G users to consume more data and upgrade to higher data plans as this hypothesis is still to be tested (hence not factored into our estimates).

Bharti’s AGR market share rose 545bps to 36.2% in past three years (FY20- FY23). We estimate it to further jump to 37.5% in FY26E (+125bps). This means Bharti will continue to outperform industry growth, and its AGR will likely see a CAGR of 13.2% over FY23-FY26E.

RJio has grabbed a higher AGR market share at 41.4% (+690bps) in past three years; however, the pace of its market share gain has decelerated in past two years. We estimate RJio’s AGR market share to expand to 42.5% by FY26E (+110bps). and, its AGR is likely to witness a CAGR of 12.9% over FY23-FY26E.

We expect VIL to secure funding in our base case, and likely arrest the decline in its market share. Basically, India seems set to remain a three-private-player market. We estimate VIL’s AGR market share at 15.7% in FY26E.

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