The Indian telecom industry is expected to end 2023 with around nine per cent year-on-year (y-o-y) revenue growth, despite stable tariffs, with Bharti Airtel (Airtel) and Reliance Jio (Jio) outpacing industry growth in third quarter (Q3 results).

On a y-o-y basis, Airtel and Jio’s revenues are expected to grow by 11 per cent and 10.3 per cent respectively, said analysts. Q3 is expected to be a stable quarter for the telcos, but capex moderation is expected to start in the second half of this year, they added.

Jio will announce its Q3 results on Friday, while Airtel on February 5 and Vodafone Idea will declare at the end of this month.

“Year 2023 was an uneventful year for the Indian telecom industry with stable tariffs and weak customer response to operators’ 5G investments. Industry consolidation continues, albeit at a slow pace. We expect 2024 to be a strong year for the industry, with a mid-year tariff hike and moderation in capex. We continue to like Airtel and Reliance despite their recent rallies,” Kunal Vora at BNP Paribas Securities India, said.

Tariff hikes

He said the operators raised tariffs in 2019 and 2021 and now expect a tariff hike in mid-2024 after the general elections. During the last five years, industry growth has been 18-20 per cent in years with tariff hikes and 9-12 per cent in years with stable tariffs, which is stronger than growth seen in other mass consumption categories.

“Industry capex rose in 2023 as the two large operators invested in 5G networks. However, due to the lack of strong uptake of 5G and the initial investments behind it, we expect Capex to slow down in 2024. We also do not see any appetite for more spectrum purchases. With a large divergence in capex between the three operators, we find the industry moving towards a duopoly,” he added.

“We expect EBITDA margins to remain stable. Airtel’s consolidated revenue growth is likely to be weak due to Naira depreciation. We assume a higher average revenue per user (ARPU) for Airtel and raise our FY25/26 estimates by three to four per cent,” Vora said.

Organic shifts

According to Axis Capital, the ongoing trend of subscriber premiumisation, with upgrades from feature phones to 4G smartphones, prepaid to postpaid, and consumption of additional services in postpaid, will help Airtel grow its blended ARPU.

“We estimate these organic shifts should lead to a 7-10 per cent ARPU uplift in the next 12-18 months, even in the absence of a tariff hike,” Gaurav Malhotra at Axis Capital said, adding that with the top two players (Airtel and Jio) controlling 78 per cent of the overall market (Jio at 40 per cent and Airtel at 38 per cent) and a severely weakened Vodafone Idea (VIL), a stable competitive environment is expected and tariffs to continue to rise in the medium term.

“However, at the same time, we believe that tariff hikes in the next 9-12 months are unlikely. This is because VIL’s relatively weak 5G offering leaves its high-end subscribers (postpaid and creamy prepaid data subscribers) susceptible to migrating to the stronger Airtel/Jio as and when they upgrade their handsets to 5G,” he added.

According to Jefferies, Airtel’s PAT margins have been under pressure due to their capex-heavy nature, which led to high depreciation and interest costs. However, PAT margins are set to breach previous peaks, it added.