Preview of telecom results third quarter: another healthy quarter, probably led by remaining rate increases

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

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

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

Nuvama Institutional shares also expect telecom operators to report healthy revenue and EBITDA growth, driven by the residual impact of tariff increases. It said subscriber numbers will improve marginally from last quarter’s levels.

JM Financial expects Jio’s ARPU to rise 4.5% quarter-on-quarter ₹204, but predicts a net subscription loss of 1.5 million, resulting in revenue and EBITDA growth of 3.1% and 4.9% respectively quarter on quarter. This growth is attributed to the residual impact of the July 2024 rate increase and robust growth in the number of mobile broadband subscribers.

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

In addition, Nuvama also has similar projections for Bharti Airtel, assuming revenue and EBITDA growth of 7% and 11.7% quarter-on-quarter, respectively, with consolidated EBITDA margin growth of 230 basis points quarter-on-quarter.

Analysts at ICICI Securities estimate revenue growth of 9.9% quarter-on-quarter and 24% year-on-year for Bharti Airtel.

Meanwhile, JM Financial expects Bharti Hexacom’s wireless ARPU to grow 4.7% quarter-on-quarter to ₹239, resulting in quarterly revenue and EBITDA growth of 4.6% and 5.9% respectively.

In contrast, the brokerage estimates that Vodafone Idea’s revenue and EBITDA will grow only 2.3% and 3.7% QoQ respectively, as the company’s net subscription loss of 4 million drives ARPU growth of 4.8% QoQ partially compensates. ₹164.

Nuvama, on the other hand, has more conservative projections, estimating quarterly revenue growth of 1.4% and EBITDA growth of 2.2%, driven by the residual impact of the tariff increase. ICICI Securities also forecasts marginal revenue growth for Vodafone Idea of ​​1% quarter-on-quarter and 3.5% year-on-year, mainly due to user churn.

For Indus Towers, JM Financial expects robust net rental additions, driven by Bharti’s nationwide expansion and VIL’s network rollout. However, it forecasts a 7.2% quarter-on-quarter decline in Indus Towers’ EBITDA, taking into account the recovery in ₹5.5 billion in outstanding dues from Vodafone Idea, compared to ₹10.8 billion was recovered in the second quarter of 25.

Airtel remains JM Financial’s top pick

Bharti Airtel remains the broker’s top pick with an unchanged one-year price target of ₹1,850 and a three-year price target of ₹2,400 per piece as it anticipates a structural upward trend 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 price target of ₹1,445 and a three-year price target of ₹1,980 each.

However, it has a ‘sell’ rating on Vodafone Idea. It lowered VIL’s FY25-27 revenue/EBITDA estimates by 2-8%, taking into account continued significant subscription losses following the recent tariff increase and lower pass-through of the tariff increase to ARPU due to higher subscription down-trading practices given the high share of subs of the segment with a low ARPU in the subs mix.

That is why the brokerage has lowered the target price ₹9 per share compared to the previous price target of ₹10.

Nevertheless, in the bull case scenario, the brokerage sees the fair value of VIL rising to ₹14 per share, assuming sharper rate increases increase ARPU ₹300 in FY30 (vs. ₹265 in the base case). It is also assumed that VIL can add a limited number of subscribers, driven by planned investments of more than ₹500 billion over FY25-FY27 and an extension of the moratorium and/or a partial conversion of shares by the GOI, 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 Vodafone Idea’s long-term survival prospects.

Disclaimer: The views and recommendations expressed in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to contact certified experts before making investment decisions.