Why Q3FY23 results of telcos are unlikely to ring happy tones


The December quarter (Q3FY23) financial results of telecom companies are set to be lacklustre. A key factor driving this will be the modest sequential growth in average revenue per user (Arpu) due to the lack of tariff hikes and slowing benefit from premiumization.

Furthermore, led by sim consolidation, subscriber addition is expected to be subdued in Q3 for the sector.

Analysts expect sequential growth in Reliance Jio’s subscriber base to moderate to 5-6 million in Q3 versus 8-10 million rise seen in Q1 and Q2.

On the other hand, Bharti Airtel Ltd’s subscriber base is likely to remain flat or post miniscule growth. But Vodafone Idea Ltd will continue to lose subscribers in Q3.

There is some cushion on margins in Q3 from savings on the spectrum usage charge, but higher operating costs for the 5G rollout could negate the benefits to some extent.

Investors would do well to watch out for management commentary on tariffs and 5G expansion. Indeed, tariff hike is a key catalyst for any upside movement in telecom stocks. From their respective 52-week highs, shares of Airtel and Vodafone Idea are down 11% and 46%.

The path ahead will not be smooth. “We believe there is greater uncertainty on tariff hikes in the near term given that large capacity creation with 5G will shift focus on boosting utilization. Moreover, focus on market share will rise amid moderating data subscriber growth and Vodafone Idea’s worsening situation,” said analysts at Jefferies India in a report on 10 January.

Given Vodafone Idea’s weak footing, the company’s efforts to raise funds remain a key monitorable. If it does not expand its 5G network in line with its peers, the telecom sector faces a risk of turning into a duopoly.

Meanwhile, 2023 will see an acceleration in the momentum of 5G network rollout.

“Operators are set to encourage customers to adopt 5G handsets by offering larger data allowances and better speed. As the network stabilises, we will watch out for efforts to monetise 5G,” said Kunal Vora, head of India equity research, BNP Paribas Securities India.

“Operators could offer plans that would require customers to pay slightly more, but likely to keep 5G plans much cheaper on a per-GB basis,” added Vora in a report.

While all this augurs well for telecom companies, investors would do well to closely follow how margins shape up.

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