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2025-09-04 02:46:08 pm | Source: Kotak Institutional Equities
Telecom Sector Update : Subtly raising the floor by Kotak Institutional Equities
Telecom Sector Update : Subtly raising the floor by Kotak Institutional Equities

Subtly raising the floor

R-Jio and Bharti recently discontinued their entry-level recharge plans, nudging subscribers to upgrade to premium plans. While we do not expect this step to result in a substantial ARPU hike per se, we see this channel strategy as a step in the direction of premiumization and data monetization. The market construct appears favorable to monetize the explosion in data consumption, and we believe such non-tariff measures would play a crucial role in aiding the ARPU uptrend going forward. We estimate ~11% ARPU CAGR over FY2025-28E, with the next hike in 4QFY26E.

 

R-Jio/Bharti discontinue entry-level plans

R-Jio discontinued its entry-level plan of Rs249 for 1 GB/day with a 28-day validity. The existing plan for 1.5 GB/day with a 28-day validity at Rs299 now becomes the entry-level plan, implying 20% higher price for 0.5 GB/day extra data. Bharti has also discontinued its entry-level Rs249 plan for 1 GB/day with a 22-day validity, making the existing Rs299 plan (28 days, 1 GB/day) entry-level, with 3% higher price. Although the price hike for the entry-level R-Jio plan is substantial, we do not expect a meaningful spike in APRU per se from these changes, given it is not the most popular plan. Leakages from recharge delays further dilute any upside.

 

Premiumization and data monetization to aid in ARPU growth

Data consumption has exploded in the Indian market, exhibiting 16%/53% CAGR in the past 5/10 years. Telcos are yet to monetize this, as data ARPU has seen a mere 1% CAGR in the past five years (-29% CAGR in the past 10 years). Management commentary across telcos highlights that data monetization has become an immediate strategic priority. Going forward, we expect the ARPU uptrend to come from a combination of (1) headline tariff hikes, (2) data monetization and (3) premiumization, with the industry gradually moving toward a multi-tier tariff construct. We expect constant nudges to customers from telcos toward bulk data plans, plans with OTT bundles and other custom channel strategies to subtly aid ARPUs between two headline tariff hikes

 

ARPU growth to come from a combination of tariff and non-tariff measures

The three private telcos have witnessed a 9-12% CAGR in ARPU in the past five years. This was aided by three rounds of tariff hikes in FY2019/22/25 of ~30- 35%/20%/12-19%. We build in ~11% ARPU CAGR over FY2025-28E, with headline tariff hikes of ~12%/10% in 4QFY26/27. This implies two-thirds of ARPU growth from tariff measures and the balance from non-tariff measures (data monetization and premiumization) over FY2025-28E.

 

Market construct to remain favorable

We expect the market construct for the telecom operators to remain favorable over the medium term. Reduction in capex intensity and a gradual uptrend in ARPU should aid strong earnings and FCF growth for the telcos. Vi’s funding shortage and R-Jio’s upcoming IPO make for a strong case of continuous tariff repair through a mix of hikes and non-tariff measures. Bharti is the best direct play. Maintain ADD with an FV of Rs2,100.

 

 

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