Telcos took rate increases of 25-40% in the prepaid category during December 2019. Another round of increases in CY20 was expected, but has been pushed to CY21 due to the impact of Covid, pending clarity on prices minima; and VIL completing the integration of the network and the new brand.
TRAI has published a consultation document evaluating the minimum prices (report) of telecommunications services and operators have requested a 5-9 times increase in data prices. The result of the query is expected.
“VIL has said that it would be the first to make rate increases and is probably waiting for the minimum prices to be clarified. Regardless of the minimum prices, the rate increases will occur later on March 21 and the others will follow. We estimate that rate increases will drive ~ 20% increase in Bharti / VIL ARPU for FY22E, “the brokerage said in a report.
According to the brokerage firm, VIL needs rate increases> 50% to collect breakeven in FY23E and remains a going concern. “We are looking at mobile revenue growth (adjusted for IUC impact) of 26% and 20% for Bharti India mobile and VIL, respectively, in fiscal year 22.”
AGR industry revenue (including NLD) grew 27% during the second quarter of fiscal 20 through the second quarter of fiscal 21 thanks to rate increases; however, industry revenue is still 8% lower than in the first quarter of 2017.
Regarding the payment of AGR dues, the report said: “In the event that the telcos lose the case, it could be the worst impact in our opinion.” Bharti has already provisioned Rs56 bn and VIL Rs39 bn in Q4FY20.
DoT is planning a spectrum auction in Q4FY21 (Jan-Mar’21) for spectrum to be renewed and unsold 4G spectrum.
ICICI Securities said the DoT is unlikely to auction the 3300-3600MHz spectrum, which is the popular 5G band. Bharti and VIL have very limited spectrum to renew and Jio has 850MHz (originally owned by Reliance Communications).
Bharti has Rs129 billion of spectrum that will roll over at TRAI’s recommended spectrum reserve prices if it rolls over the entire spectrum. However, the company has already bought spectrum from Tata Tele, Telenor and Videocon in these circles, so it does not need to renew its entire spectrum.
“In our base case, we estimate that Bharti will buy spectrum worth just Rs 58 billion in upcoming auctions. VIL is worth Rs 100 billion worth of spectrum under renovation, however the Vodafone and Idea merger has added significant spectrum in VIL, and it may be necessary to buy spectrum worth only Rs 19 billion in upcoming auctions, “the brokerage said.
Bharti’s incremental AGR (including NLD) grew significantly, helping to narrow the gap with market leader Jio, thus driving higher market share. Bharti’s AGR market share (including NLD) improved by 100 basis points YoY to 32.2% during the second quarter of fiscal 21 despite the negative impact of Bharti becoming a net IUC payer of the recipient, while Jio gained a market share of 315 basis points to 39%, which benefited by becoming a net IUC recipient versus being a payer earlier, the report said.
Bharti’s incremental AGR (including NLD) year over year has grown from Rs3 billion in Q2FY20 to Rs31 billion in Q2FY21 and has narrowed its gap with RJio to Rs13 billion from Rs30 billion earlier, thus gaining higher market share. incremental, he added. “This gives us confidence that Bharti’s market share will continue to grow in fiscal year 22E as well.”
ICICI Securities said 4G penetration increased to 57%, an increase of 425 basis points in 6MCY20 despite the impact of Covid. The 4G subscriber base grew 7% to 646 million (43 million net adds) driven by Jiophone sales. Growth in 4G subscriber additions is expected to continue in CY21 and may also see a boost from the launch of lower-end smartphone operators, the report noted. “This should help increase ARPU organically from a change in subscriber mix.”
Bharti has seen strong growth in its 4G subscribers in CY20 and due to its deeper expansion of the 4G network, growth should continue to grow rapidly. In contrast, VIL’s 4G net addition has moderated.
As of September 2020, the telecommunications company led by Sunil Mittal had 326.6 million subscribers, while Vi lost 4.7 million subscribers and ended September with a subscriber base of 295.5 million, according to Trai data. .
On a normalized basis, telcos should get an incremental EBITDA margin of 65-70% and Bharti should get the most, while VIL may see higher EBITDA from cost optimization and specific savings of Rs 40 billion, the report noted.
Capital spending is expected to remain subdued for Bharti in fiscal 22 due to the completion of the 4G network expansion and investment in fiber, while VIL’s insufficient investment in networks would limit its ability to incur expenses. capital, the firm said in its report. “We see Bharti generating Rs 150 billion in FCFE, while VIL would see a big cash burn of Rs 80 billion. Cash flow is positive because it was positively affected by a moratorium on deferred spectrum liabilities. ”