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Strong quarter fueled by partial benefits of tariff hike flow-through

As expected, 2QFY25 was a strong quarter for telcos, with 8% QoQ growth (17% YoY, in line) in wireless revenue for the three private telcos. Blended wireless ARPU was up 9% QoQ (+11% YoY), driven by partial benefits of Jul’24 tariff hikes. However, due to SIM consolidation after the tariff hikes, reported subscribers for private telcos declined by ~21m (-2% QoQ). We expect subscriber churn to moderate over the next few months. EBITDA for private telcos was up ~10% QoQ (+18% YoY, in line), driven by healthy ~70% incremental margins. Among private telcos, Bharti was again the biggest gainer in 2QFY25, with ~90bp QoQ gain (~175bp YoY) in revenue market share (RMS) and ~40bp QoQ gain (+60bp YoY) in subscriber market share (SMS). RJio lost ~45bp QoQ (-15bp YoY) RMS and ~30bp QoQ (still up 100bp YoY) SMS in 2Q due to the clean-up of inactive subscribers. Vi continued to lose market share, with RMS down further ~45bp QoQ (-160bp YoY) and SMS down ~10bp QoQ (-165bp YoY). With the completion of the first phase of 5G rollouts, wireless capex for BHARTI and RJio moderated sharply in 1HFY25, while Vi’s capex inched up moderately following the fund raise. The home broadband subscriber net additions accelerated for Bharti/RJio in 2Q, with the ramp-up in fixed wireless access (FWA) offerings.

Tariff hike boost partially offset by subscriber churn; Bharti the biggest gainer

Driven by the partial flow-through of tariff hikes, blended wireless ARPU improved ~9% for private telcos, with Bharti leading with ~11% QoQ uptick, followed by RJio and Vi with ~7% QoQ improvement each. The tariff hikes led to SIM consolidation and a 40-110bp QoQ increase in monthly churn. Their reported subscriber base declined ~21m (-2% QoQ), with RJio reporting the highest wireless net subscriber decline of ~12-13m, followed by 5m decline for Vi and modest ~3m decline for Bharti. We expect subscriber trends to normalize from 3QFY25. With tariff hike flowthrough partly offset by subscriber churn, wireless revenue for private telcos rose ~8% QoQ, with Bharti leading with ~10% growth, followed by 7% growth for RJio and 5% rise for Vi. Bharti’s incremental RMS at ~52% remained higher than its 2Q RMS of ~40.5%.

Robust incremental margin drives 10% sequential growth in combined EBITDA for three private telcos

Driven by tariff hike flow-through, incremental margin for private telcos improved to ~70% (from 66% QoQ). As a result, the combined EBITDA grew ~10% QoQ (~18% YoY), with Bharti leading with ~13% growth, followed by RJio and Vi with 8% growth each. Vi led with ~160bp QoQ EBITDA margin expansion, followed by ~145bp expansion in Bharti’s wireless EBITDA margin. RJio’s EBITDA margin improved by a modest ~50bp QoQ owing to a sharp ~10% QoQ increase in customer acquisition costs.

Capex moderating for Bharti and RJio; net debt inches up for Bharti and Vi on spectrum purchases

* Bharti’s India wireless capex declined 30% YoY (down 18% QoQ) to INR40b, with India capex reducing 20% YoY (8% QoQ) to INR63b. Bharti’s 1HFY25 India capex stood at ~INR130b and it could inch up in 2H; however, we believe Bharti’s India capex likely peaked in FY24 (~INR335b) over a medium-term perspective.

* RJio’s 1HFY25 cash capex was up 17% YoY at ~INR200b, likely on repayment of capex creditors. However, RJio’s asset additions (an indication of committed capex and interest capitalized) declined to ~INR205b (from INR380b YoY).

* Vi’s 2QFY25 capex increased to INR14b (from ~INR8b in 1Q) as it rolled out ~42k 4G sites. Management indicated that capex would further rise to INR80b in 2HFY25 as Vi targets to further ramp up its 4G population coverage and selectively roll out 5G services.

* Bharti’s consolidated net debt (excluding leases) increased INR59b QoQ to INR1.41t on spectrum acquisition and dividend payments.

* Vi’s net debt (excluding leases) increased INR93b QoQ to INR2.12t on account of dues repayment to vendors/ banks, higher cash capex, and spectrum acquisition.

* RJio’s net debt declined ~INR90b in 1HFY25 to INR2t, with 1HFY25 FCF generation at INR28b (vs. INR2b YoY).

Indus continues to benefit from the prior-period provision reversals: The 2Q

reported financials came in ahead of our estimate owing to a higher-than-expected reversal of prior-period bad debt provisions (INR11b vs. our estimate of INR5b). However, core operational performance was slightly below estimates, with a 2% miss on recurring EBITDA (+1% QoQ, +7% YoY) due to lower tower net additions and weaker energy spreads. Tower additions further moderated QoQ on adverse weather events but should pick up in 2H. Vi’s fund raise and impending network rollout are materially positive for Indus as it: 1) helps sustain 100% collections, 2) enables past dues recovery (INR36b), and 3) provides incremental business to Indus at minimal capex. However, we remain apprehensive of the long-term risks from the potential shortfall in Vi’s payments, given its large cash shortfall (INR200b+ annually over FY27-31E).

TCOM’s subdued performance continues: TCOM’s data revenue grew 3% QoQ, with growth primarily led by the loss-making incubation segment. EBITDA declined 1% QoQ (5% miss) as margin contracted 60bp QoQ to 19.4%. Reported financials were also boosted by INR0.9b prior-period revenue recognition; adjusting for the same, growth in its core business remained muted.

* Top picks: BHARTI and RIL

Guidance highlights:

* RJio: It has rolled out standalone 5G services and migrated 148m users to 5G. The pace of home connects accelerated to 1.8m in 2QFY25 (3x vs. past four quarters on average), and management plans to further ramp up customer acquisition to 1m homes per month with a target to reach 100m connected homes (vs. ~14m in 2Q).

* Bharti: The flow-through of the tariff hike has been in line with the management’s expectations, while the SIM consolidation and customer downtrading came in lower than its initial expectations. Management reiterated its stance on the need for further tariff hikes and a change in tariff construct to usage-based plans.

* Vi: The company rolled out ~42k 4G sites during 2Q, which led to an increase in 4G population coverage by 22m to 1.05b by Sep’24. Management expects to reach 4G population coverage of 1.1b by Mar’25 and 1.2b by Sep’25. Further, it aims to start rolling out 5G services from 4QFY25. Vi is targeting INR80b capex in 2HFY25 (vs. ~INR22b in 1H).

* TCOM: The order book was up 25% YoY in 2Q on account of large deal wins with OTTs and hyper-scalers as well as the highest order booking in five years in international business. The funnel remains robust, though funnel additions have been subdued. Management has maintained its ambition of doubling data revenue by FY27 and bringing EBITDA margins back to 23-25% over the medium term.

* Indus: Tower additions were impacted by seasonality in 2Q. However, order book remains healthy, and management expects tenancy additions to improve further on account of Vi’s upcoming network rollouts. Further, Indus’ management remains engaged with Vi for swift clearance of past overdues and to ensure timely payments.

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