Jio, Airtel, Vodafone Idea to get lower spectrum usage charge boost in FY2Q: Analysts

Bharti Airtel and Reliance Jio are set to report steady revenue growth in the fiscal second quarter, helped by strong 4G customer additions while Vodafone Idea’s modest revenue gains are likely to be further tempered by heavy customer losses, analysts said.

They, though, expect all three telcos to report higher operating margins in the September quarter, helped by the partial impact of lower spectrum usage charges (SUC), post-participation in the recent 5G spectrum sale.

This is since all three telcos bought sizable chunks of 5G airwaves in the recent auction that won’t attract any SUC, and in turn, would cut their overall payout of these statutory fees in the July-September period. But analysts expect operators to reap the full benefit of lower SUC payouts only from the third quarter, FY23.

ICICI Securities estimates Airtel and Jio Platforms (JPL) to report 2.3% and 3.1% sequential growth respectively in their India mobile revenue in the July-September period, also helped by the extra day in the quarter. It, though, pegs Vi’s sequential revenue growth lower at 1.5%, hurt by another quarter of heavy customer losses.

JPL is a wholly-owned arm of RIL that houses the Mukesh Ambani-owned group’s telecom business, Jio, and other digital properties and investments. Jio, though, makes up the bulk of JPL’s numbers.

I-Sec estimates Airtel and JPL to report 3 million and 4 million user additions respectively in Q2FY23 despite rising cost of mobile services, while it sees Vi losing another 4 million users as the latter’s liquidity woes are hindering network investments and its ability to hold on to customers.

Emkay Global expects Jio to report the highest average revenue per user (ARPU) growth in the July-September period among the three carriers, at 3% on-quarter, to Rs 181, helped by residual gains from last December’s tariff hike as India’s top telco has more users on longer-validity plans. It reckons Airtel and Vi to both report 1% sequential growth on this key metric to Rs 185 and Rs 129 respectively.

BNP Paribas estimates the partial impact of the lower SUC payouts to result in 2-3 percentage point increase in operating margins spread for telcos over 2Q and 3QFY23.

Analysts at I-Sec estimate that Airtel, Jio and Vi’s operating margins (read: earnings margin before interest, tax, depreciation & amortisation) to expand by 97 basis points (bps), 109 bps and 37 bps to 51.6%, 49.8% and 42% respectively in Q2FY23. A bps or basis point is 0.01%.

The SUC payout for telcos, which was around 3-3.5 % of AGR, is slated to drop to negligible levels — below 1% of AGR — as airwaves acquired in the July 2022 auction won’t attract the levy and also since the government has removed the 3% floor rate on the statutory fee.

I-Sec estimates Airtel’s Q2 consolidated net profit to jump over 77% sequentially to around Rs 2,850 crore helped by strong customer additions in India and also boosted by revenue and operating income growth in Africa.

Analysts also expect Airtel’s India non-mobile businesses, including home broadband and enterprise, to continue their strong growth trajectory.

But an analyst, who did not wish to be named, said another reason for Airtel’s high PAT growth estimate is the prospect of a better profit contribution from Indus Towers, in which Airtel owns a 47.76% stake.

Analysts at I-Sec estimate Jio Platforms to report a 6.2% sequential rise in net profit in the September quarter to around Rs 4,811 crore — its 20th successive quarterly profit — due to a mix of higher Ebitda and robust user adds.

BofA Securities estimates Vi’s September quarter loss to widen sequentially to around Rs 7,340 crore, stung by heavy user losses and its continuing inability to compete effectively with its two stronger rivals.