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Bharti’s incremental RMS at 51%; Hexacom becomes RMS leader

Robust AGR growth sustained driven by residual tariff hike flow-through

India’s telecom industry revenue (AGR including NLD) increased 4% QoQ to INR702b (+15% YoY) in 3QFY25, mainly driven by the flow-through of tariff hikes. The implied industry ARPU was up 5% QoQ to INR203/month, while the industry subscriber base declined by a further ~3m (vs. 17m decline QoQ). India’s telecom spends as a % of nominal GDP moderated to ~0.83% in 3Q (vs. 0.86% QoQ) and remained notably below ~1.4% of GDP, before the RJio launch. We note that the industry’s quarterly AGR has grown by ~INR78b (~12.5%) since the Jul’24 tariff hike. Bharti remained the biggest beneficiary of tariff hikes, with ~50% QoQ incremental RMS (vs. ~39% overall RMS) over the last two quarters.

Bharti remains the biggest beneficiary of tariff hike with ~51% incremental RMS

Bharti continued to grow ahead of its peers, with AGR (including NLD) rising ~5% QoQ to INR274b (+22% YoY) as implied ARPU inched up to INR238 (+6% QoQ). Bharti’s QoQ incremental RMS in 3QFY25 was robust at ~51% (vs. ~39% overall RMS). RJio’s AGR (inc. NLD) grew ~3% QoQ to INR289b (+15% YoY) as implied ARPU improved ~5% QoQ to INR213. Vi continued to lag peers as a 4% QoQ implied ARPU uptick was offset by subscriber declines, for modest ~1% QoQ AGR growth to INR98b (+3.5% YoY). Driven by ~6% QoQ implied ARPU uptick, revenue for others (primarily BSNL) rose ~9% QoQ (+8% YoY) to INR41b in 3Q

Bharti Hexacom achieves RMS and VLR leadership in its circles

As we noted in our recent initiating coverage note, Hexacom is on course to become the RMS leader in its circles. We note that Bharti gained ~35bp QoQ in wireless SMS and bridged the gap by a further ~20bp QoQ to ~160bp with RJio. With ~65bp gain on VLR subs market share, Bharti has regained VLR leadership in Hexacom circles from RJio with ~41.6% market share. Moreover, with superior translation of tariff hikes, Bharti’s implied ARPU grew 22% over the last two quarters (vs. a modest 12% for RJio) in Hexacom circles. As a result, Bharti leapfrogged RJio in Hexacom circles with its RMS rising to 45.8%, a ~150bp QoQ RMS gain (vs. 110bp dip for RJio to 43.5%).

A, B, and C circles witness 5-6% QoQ AGR growth, while Metros lag

Overall subscriber base decline continued in most circle categories, with Metros experiencing ~1% QoQ dip in subscriber base. A, B, and C circles witnessed ~6-7% QoQ increase in implied ARPU, while Metros continued to lag with ~1% QoQ decline. As we noted in an earlier report, the Jul’24 tariff hike flow-through has been divergent across telcos. We note the tariff hike flow-through has also been divergent across circle categories. A and B Circles witnessed ~16-17% implied ARPU increase over the last two quarters, followed by a 13% increase in C circles, while implied ARPU increased by a modest ~6% in Metros. As a result, A and B circles led with ~15% AGR uptick over the last two quarters, followed by ~12% rise in C circles, while Metros lagged with a modest ~4% AGR growth. Bharti remained the biggest gainer across A and B category circles, while Vi/BSNL gained in C circles and Metros, respectively.

Industry ARPU/AGR doubled since Sep’19 led by three rounds of tariff hikes

Driven by three rounds of tariff hikes since Sep’19, the telecom industry’s ARPU has more than doubled from INR98 in Sep’19 (the quarter preceding the first tariff hike) to INR203 in Sep’24. However, as a result of sharp tariff hikes (~15% industry ARPU CAGR over the last five years), the industry’s subscriber base at 1.15t is even lower than Sep’19 levels (1.17t). Further, adjusting for the growth in M2M/IoT SIMs, the industry subscriber base decline would have been even higher. Driven by three rounds of smartphone tariff hikes (Dec’19, Dec’21, and Jul’24), India’s quarterly telecom revenue has doubled (up 2.05x) since Sep’19 to INR702b, implying ~14% five-year industry revenue CAGR.

Bharti and RJio account for ~98% of the incremental revenue since Sep’19

* Among the telcos, Bharti has been the biggest beneficiary of tariff hikes with a 2.3x surge in implied ARPU over Sep’19-Sep’24, implying a ~17% five-year CAGR, followed by ~14%/12% CAGR for RJio/Vi. We believe significant improvement in data subs proportion and minimum recharge hikes have also been a key driver for Bharti’s industry-leading ARPU.

* Since Sep’19, Bharti’s revenue has increased ~2.7x, implying ~21% 5-year revenue CAGR, with incremental revenue market share significantly higher at ~48% (vs. ~39% RMS). Similarly, RJio’s incremental RMS over the last five years also stood at a healthy ~48% (vs. ~41% RMS), driving ~2.5x surge in revenue since Sep’19 (~19% five-year CAGR). Comparatively, Vi accounted for a modest ~2% incremental RMS over Sep’19-Dec’24 as its AGR inched up by a modest INR7b (~8%) since Sep’19, as subscriber churn offset the tariff hike benefits.

Valuation and view

* The pass-through of the Jul’24 tariff hikes has seen divergent trends, with Bharti being the biggest beneficiary in the last two quarters. We believe the tariff hike benefits are already reflected for Bharti and Vi, while we expect RJio to see a delayed benefit, likely due to a larger proportion of its subscriber base on longer-duration plans.

* Given the consolidated market structure in the Indian telecom industry, higher data consumption, lower ARPU, and inadequate returns generated by telcos, we expect one more tariff hike and build in ~15% tariff hike in Dec’25.

* We believe telcos would have to change the pricing construct to usage-linked plans for the ARPU growth to sustain beyond FY27.

* We do not expect Vi to become competitive, despite its large capex plans. We believe RJio and Bharti are still likely to continue gaining market share at Vi’s expense, given their deeper pockets and superior FCF generation. We continue to prefer Bharti and RIL in the telecom space.

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