The flow-through of tariff hikes (effective 3-6 th Dec’19) will be reflected in Q4 revenues
though it would also be dependent on the recharge cycle which differs between operators.
However, we believe that Bharti will record the highest ARPU increase in Q4 compared
with VIL and Jio. The steep tariff hikes (15-50%) should also lead to SIM consolidation,
resulting in subscriber losses of 1mn and 8mn for Bharti and VIL, respectively. In addition,
gross subscriber additions should see some impact of 10 days of lockdown in March. Data
subscriber addition is expected to remain decent, which should also support ARPU
partially.
We expect Bharti to record healthy performance with 17% sequential growth in wireless
revenue, driven by an ARPU increase of 13%. VIL should record relatively lower growth in
underlying ARPU, while subscriber loss should aid ARPU growth of 12% qoq. Data volume
should rise 13%/10% for Bharti/VIL. In our view, data volume growth will also have a
marginal contribution from pent-up data demand in the last 10 days of March (lockdown
period). Data subscribers for Bharti and VIL are expected to be at 145mn each.
EBITDA for Bharti should rise 11% qoq, with margins expanding 132bps, boosted by
mobile revenue growth. The Africa business is expected to see stable performance in a
seasonally weak quarter. VIL’s EBITDA growth is expected at 13% qoq, with a margin
expansion of 205bps.
Jio: The tariff hike will fully reflect from Q1FY21E as the majority of the subscriber base is
on long-tenure plans. Subscriber additions are expected at 20mn vs. 15mn in the last
quarter. The ARPU is estimated to increase 5% qoq to Rs134. EBITDA should see 15%
growth qoq, while PAT increase will be restricted due to higher depreciation and interest
charges.
Bharti Infratel: The company is expected to see a marginal improvement in net tenancy
adds on a sequential basis. We estimate consolidated tower additions of 544 and a net
tenancy increase of 1,207 vs. 744 in Q3, resulting in a tenancy ratio of 1.85x, flat qoq.
Average rental (excluding exit penalties) is expected to remain flat qoq due to the impact
of prior-period exits. Energy reimbursements are projected to decline by 2% qoq, driven
by lower diesel prices. Energy margins are expected to improve to 5.8% from 1.6% in
Q3FY20. The higher energy margin assumption reflects annual margin guidance of 3%;
however, it has remained volatile over the past few quarters. Service revenue EBITDA
margins are expected to remain flat qoq.
We continue to be upbeat about Bharti Airtel’s long-term prospects and it remains
our top pick in the sector. The future prospects of VIL and BHIN are dependent on
final AGR penalty and payment timelines, along with potential tariff hikes or the
implementation of floor pricing.
