PL Sector Report - Telecom - Jul-Sep'23 Earnings Preview - Steady growth expected

Telecom – Swarnendu Bhushan – Co-Head of Research, Prabhudas Lilladher Pvt Ltd

Jul-Sep’23 Earnings Preview – Steady growth expected

Q2FY24 Revenue and EBITDA of telecom companies in our coverage universe (Jio (unrated) + Bharti) is expected to increase by +3.1%QoQ and +3.6% QoQ to Rs633.7bn and Rs333.4bn resp. with steady subscriber addition of 6.5mn, besides building gradual increase in ARPU growth (1.7%QoQ). Due to falling competitive intensity, given weak financial position of peers, we maintain our positive stance on the sector. We also factor in delayed tariff hikes and build in ARPU of Rs215/235 for FY24/25. Reiterate ‘BUY’ on Bharti (preferred pick) at SOTP based TP of Rs936 as we incorporate minor changes in our assumptions.

§ Bharti Airtel: For Q2, we have factored subscriber growth of 3.0 mn (Q1FY24: 3.2 mn) to 341.6mn coupled with ARPU increase of 1.6% QoQ to Rs 203. Airtel Africa business is expected to see revenue growth of 5.8% QoQ, and we have factored in a 4% QoQ growth rate for the enterprise business. Home services will see revenue growth of 6.8% QoQ with margin contraction of 40bps QoQ. For DTH we have factored a de-growth of 2.5% QoQ.

§ Accordingly, Bharti’s Q2FY24E consolidated Revenue/EBIDTA is expected to increase to Rs385.2bn (+2.9% QoQ)/Rs200.3bn (+2.2% QoQ). We expect 4.8% QoQ decrease in PAT to Rs 15.3bn.

§ Bharti is also targeting ~Rs 500bn market opportunity with its Enterprise offerings including CPaaS, cloud, cybersecurity and data centers as company expects 80% of corporates will put up 5G within next 3 years.

§ JIO: We expect JIO to report Revenue/EBIDTA of Rs 248.5bn (+ 3.4% QoQ)/Rs 133.1bn (+5.8% QoQ). We have also factored in ARPU of Rs184 (+1.9%QoQ) and subscriber addition of 3.5mn in Q2 (9.2mn in Q1).

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