Has Airtel turned the corner, finally?
Premium- In Q3, Airtel’s mobile subscriber base shrank sequentially by 600,000 users to 323 million
- Airtel’s Arpu rose from ₹153 in Q2 to ₹163 Q3 because of tariff increases in November
BENGALURU/MUMBAI : Telecom services provider Bharti Airtel Ltd outperformed peers Reliance Jio and Vodafone Idea Ltd on key parameters in the December quarter (Q3FY22). In Q3, Airtel’s mobile subscriber base declined sequentially by 600,000 users to 323 million. In comparison, Vodafone Idea subscribers declined by 5.8 million, and those of Reliance Jio subscribers declined by 8.5 million in the period. Airtel’s 4G customers in Q3 increased by 30 million from a year earlier and by 3 million sequentially.
The moderation in subscriber base was because of SIM consolidation, the management said in a post Q3 call. However, the consolidation this time was less severe than after the 2019 price hikes. The management expects the trend of SIM consolidation to correct from here on and normalcy to resume in Q1FY23.
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Airtel’s average revenue per user (Arpu) rose from ₹153 in Q2 to ₹163 Q3 because of tariff increases in November and a better subscriber mix. “Bharti’s 6% quarter-on-quarter (q-o-q) rise in India mobile Arpu was the key positive surprise in Q3. Bharti’s focus on raising tariffs/Arpu will keep its churn high, particularly among voice subscribers, but the change in the mix will drive up its Arpu," analysts at Jefferies India Pvt. Ltd said in a report on 9 February. For perspective, Reliance Jio and Vodafone Idea’s Arpus stood at ₹152 and ₹115 in the December quarter, respectively.
Airtel also led the race on the revenue front in the quarter, with sequential growth of 5.4%, while Jio and Vodafone Idea saw 3.3% growth each. Overall, Airtel’s consolidated revenue at ₹29,867 crore marginally exceeded Bloomberg’s consensus estimate of ₹29,370 crore.
The full benefit of tariff hikes can be expected to be reflected in the March quarter. Airtel’s management said it expects another round of rate increases towards the end of 2022. The company expects to exit the year with Arpu of ₹200. Investors would closely follow the price band fixed by the government for the sale of spectrum in the upcoming 5G auctions, with Airtel sailing through the third quarter comfortably. “Aggressive bidding by its peer Jio could result in an unfavourable operating environment for Airtel," said an analyst with a domestic brokerage house requesting anonymity.
Bharti’s recent rights issue of ₹21,000 crore, cash flow relief from the moratorium on government dues, and its strong cash flows generation indicate that it is well placed. Analysts at Jefferies note that during Q3FY22, Bharti Airtel’s free cash flows to the firm nearly doubled sequentially to ₹11,300 crore because of sequential growth in cash flow from operations and decline in capital expenditure.
Investors should note that the Telecom Regulatory Authority of India is expected to give its recommendations on the 5G auctions by March. The Airtel management expects the floor price for bidding to be lower than the levels initially being discussed.
“Apart from that, Q4 will see the complete impact of the tariff hike, which is likely to result in a sharp sequential growth in Ebitda, and that could be a key trigger for the stock," said the analyst quoted above. Ebitda is earnings before interest, taxes, depreciation, and amortization.
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“At an industry level, subscriber growth is showing signs of moderation as operators have raised tariffs. We see this trend continue for the next one-two quarters as the market absorbs the higher tariffs," said a BNP Paribas report dated 9 February.
Airtel’s shares have appreciated by 20% in the past year, suggesting that investors are factoring a good portion of the optimism in the price. After a good quarter, investors are likely to watch the impact of tariff hikes on growth closely.
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