Telecom Q3 results preview: Another healthy quarter likely led by residual flow-through tariff hike | Stock Market News

Telecom Q3FY25 Results Preview: Telecom companies are expected to report firm revenue and EBITDA growth for the third quarter of the financial year 2024-25, suggests brokerages.

Domestic brokerage JM Financial, in its latest note, forecasts Jio, Bharti Airtel (India wireless), Bharti Hexacom, and Vodafone Idea to achieve EBITDA growth of 4-6% QoQ, driven by the continued pass-through of the tariff hike to their ARPU. 

The average revenue per user (ARPU), a key performance metric for telecoms in the sector, is steadily increasing due to the migration from 2G to 4G and a growing proportion of postpaid customers.

Nuvama Institutional equities also expect telecom operators to report healthy revenue and EBITDA growth driven by the residual impact of tariff hikes. It said subscribers’ addition shall improve marginally from last quarter’s levels.

JM Financial expects Jio’s ARPU to rise by 4.5% QoQ to ₹204 but predicts a net subscription loss of 1.5 million, resulting in revenue and EBITDA growth of 3.1% and 4.9% QoQ, respectively. This growth is attributed to the residual pass-through of the July 2024 tariff hike and robust mobile broadband subscriber gains.

JM Financial expects Airtel’s ARPU to improve by 4.7% QoQ to ₹244 in Q3FY25, driven by the residual pass-through of the July 2024 tariff hike, upgrades, and an improved subscriber mix.

In addition, Nuvama also has similar projections for Bharti Airtel, anticipating 7% and 11.7% QoQ growth in revenue and EBITDA, respectively, with consolidated EBITDA margin growth of 230 basis points QoQ.

Analysts at ICICI Securities estimate a 9.9% QoQ and 24% YoY surge in revenue for Bharti Airtel.

Meanwhile, JM Financial projects Bharti Hexacom’s wireless ARPU to grow by 4.7% QoQ to ₹239, resulting in revenue and EBITDA growth of 4.6% and 5.9% QoQ, respectively. 

In contrast, the brokerage estimates Vodafone Idea’s revenue and EBITDA to grow by only 2.3% and 3.7% QoQ, respectively, as the company’s net subscription loss of 4 million partly offsets the 4.8% QoQ ARPU growth to ₹164.

Nuvama, on the other hand, has more conservative projections, estimating a 1.4% QoQ growth in revenue and 2.2% growth in EBITDA, driven by the residual impact of the tariff hike. ICICI Securities also forecasts a marginal 1% QoQ and 3.5% YoY growth in Vodafone Idea’s revenue, primarily due to churn in its user base. 

For Indus Towers, JM Financial anticipates robust net tenancy additions, driven by Bharti’s rural expansion and VIL’s network rollout. However, it forecasts a 7.2% QoQ decline in Indus Towers’ EBITDA, factoring in the recovery of ₹5.5 billion in past dues from Vodafone Idea, compared to ₹10.8 billion recovered in Q2FY25.

Airtel remains JM Financial top pick

Bharti Airtel remains the brokerage’s top pick with an unchanged one-year target price of ₹1,850 and a three-year price target of ₹2,400 apiece as it anticipates a structural uptrend in industry ARPU (10-12% CAGR to ₹300 in the next 3-4 years) given the consolidated industry structure and higher ARPU requirement for Jio to justify significant 5G capex and its potential IPO.

The brokerage also has a ‘buy’ rating on Bharti Hexacom, with a one-year target price of ₹1,445 and a three-year price target of ₹1,980 apiece. 

However, it has a ‘sell’ rating on Vodafone Idea. It trimmed VIL’s FY25-27 revenue/EBITDA estimates by 2-8%, factoring in continued significant subscription loss post the recent tariff hike and lower pass-through of tariff hike to its ARPU on account of higher subscription down-trading practices given the high proportion of low ARPU segment subs in its subs mix.

Hence, the brokerage has cut the target price to ₹9 per share from the earlier price target of ₹10.

Nevertheless, the brokerage in its bull case scenario sees VIL’s fair value rising to ₹14 per share, assuming sharper tariff hikes driving ARPU to ₹300 by FY30 (vs. ₹265 in its base case). It also assumes VIL can add a limited number of subscribers, driven by planned capex of over ₹500 billion over FY25-FY27 and an extension of the moratorium and/or partial equity conversion of GoI dues, depending on VIL’s evolving liquidity position.

Meanwhile, it has a ‘hold’ rating on Indus Towers with an unchanged price target of ₹350 due to risk to the long-term survivability of Vodafone Idea.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.