Telecom industry revenues likely to grow in double-digits over FY 24-26: Analysts

“We expect the industry growth rate to accelerate in coming quarters led by tariff hikes, which, coupled with moderation in churn, should augur well for the margins in FY25. Additionally, we expect capex to moderate, which should lead to stronger free cash flow (FCF) generation,” analysts at BNP Paribas said in its analysis note seen by Moneycontrol.

The telecom industry's growth in FY24 was superior to other mass consumption categories, such as consumer staples.

Analysts at BNP Paribas also expect the Indian telecom industry's revenue growth to remain in double digits over FY 24-26, led by tariff hikes and customers upgrading to bundled plans.

ICICI Securities, in a separate note, said that telecom is considered a necessity; therefore, as the economy grows, consumer spending on communication services falls.

“India’s telecom players have been able to maintain and in fact, slightly grow the wallet share of consumers’ expenditure. India’s telecom industry revenue is expected to grow faster than nominal GDP in the next four years, probably the only country to see such a trend,” analysts at ICICI Securities said.

AGR grew at a CAGR of 13.6 percent to Rs 2,36,900 crore over FY20–24.

Analysts at ICICI Securities stated that their estimates assume all three telecom operators will fully convert the entire tariff hike into revenue without significant losses.

"Historically, this has varied, with Bharti demonstrating the strongest track record, Vodafone Idea struggling due to under-investment in 4G, and Reliance Jio experiencing revenue leakage from SIM consolidation," they said in the note reviewed by Moneycontrol.

Revenue growth for all

Bharti Airtel’s subscriber base and ARPU are expected to grow at CAGRs of 2.2 percent and 11.1 percent, respectively, over FY24–28E. “ARPU growth will be supported by two tariff increases.

“Consequently, Bharti’s mobile revenue to grow at a CAGR of 13.9 percent; and EBITDA to jump at a CAGR of 18.7 percent over FY24-28E. Non-mobile revenue and EBITDA to increase at a CAGR of 10.9 percent and 11.8 percent, respectively in the same period. Bharti India’s revenue is therefore estimated to grow at a CAGR of 14.1 percent over FY24- 28E, ICICI Securities said.

Vodafone Idea’s subscriber base and ARPU are expected to grow at CAGRs of 3.3 percent and 9.9 percent respectively, over FY24–28E. The telco’s revenue is expected to grow at a CAGR of 12.7 percent, and EBITDA to jump at a CAGR of 32 percent over FY24-28E.

“We have assumed VIL’s incremental EBITDA margin of ~63.4 percent over FY25-28E, which is higher than its recent performance. VIL’s cash EBIT to break even only in FY27E; however, it will likely continue to be loss-making at the PBT level due to higher finance cost,” ICICI Securities said.

Jio’s revenue to grow at a CAGR of 15.5 percent over FY24–28E, which will be industry-leading. Cash EBITDA will grow at a CAGR of 20 percent as the company will charge more cost to P&L related to fibre rental.

“Jio has, in the past two years, focused on driving strong revenue growth, which was propelled by expansion in subscriber market share. Jio’s subs growth has been market-leading at a CAGR of 5.6 percent over FY20–24E. However, this has cost ARPU growth, which has lagged behind Airtel and grown at a CAGR of 8.6 percent over FY20–24E,” ICICI Securities said.

Q4: Contrasting operational trends for Jio, Airtel

Both Reliance Jio and Bharti Airtel continued to gain revenue market share in the January-March quarter of 2024.

Analysts, however, believe the recent fundraising by Vodafone Idea could make further market share gains for Jio and Airtel slightly more difficult over the medium term.

Airtel and Jio reported similar financial trends for 4Q with their top-line growth accelerated, reversing the previous two quarters’ trend. However, the underlying operating metrics for both telcos were starkly different.
Jio’s revenue growth was 2 percent sequentially and 11 percent year-on-year, led by net additions of 10.9 million subscribers. Airtel’s revenue growth was 2 percent sequentially and 13 percent year-on-year, led by 6.7 m subscriber additions.

“The underlying operating metrics to deliver this were, however, starkly different – Bharti’s top-line growth continues to be ARPU-led on premiumisation, while for Jio, the growth is coming from subscriber addition (the highest in the past many quarters) even as its reported ARPU was flat sequentially,” analysts at Axis said.

In the fourth quarter of FY24, revenue of the top three telcos grew 2 percent sequentially and 10 percent year-on-year to Rs 58,600 crore, led by quarterly 4G/5G subscriber additions and subscriber mix improvement.

ICICI Securities’ analysts said Jio’s revenue market share has stabilised in recent quarters. Airtel’s revenue growth was slightly better than Jio’s, supported by its focus on premium subscribers.

“In our revised industry model, we envisage Airtel and Jio growing their AGR market share by 50 bp and 150bp, respectively over FY24–28E; while VIL’s market share should start growing from FY26 on the back of investment in the network,” ICICI Securities said.