Revenue and EBITDA growth at Indian telecom companies during the financial year ending March 2021 (FY21) will slow due to lower data growth and weaker economic activity amid COIVD-19 pandemic, according to Fitch Ratings.
Notwithstanding the effect of the pandemic, Fitch expects FY21 industry mobile service EBITDA to increase by about 15% yoy (FY20: 25%), which will outperform Indian GDP growth forecast of 0.8%, as the industry will realise the full-year benefit of industry-wide tariff hikes of about 30% effective December 2019.
Telcos’ Q4 FY20 EBITDA growth was driven by tariff hikes and 4G data growth, which Fitch forecasts to decelerate in FY21 as lockdowns were only implemented from March 24, 2020.
Fitch expects Bharti Airtel’s FY21 Indian mobile segment’s EBITDA to improve by 15%-20%, below its previous expectation of 20%-25%, on lower data growth, as smartphone sales are likely to drop significantly in H1 FY21 as feature-phone users are unable to upgrade to 4G smartphones during the lockdown.
Fitch has also lowered its assumption of FY21 net subscriber addition to about 15 million, from 30 million as users are unable to port their numbers during the lockdown.
The pandemic-led economic slowdown will mostly affect lower-revenue users — those who spend ₹50-100 a month — which could prevent further improvements in monthly average revenue per user (ARPU).
Market leader, Reliance Jio reported sequential revenue and EBITDA growth of 6% and 11% respectively as ARPU growth was less pronounced at 2% to ₹131.
This was due to the significant proportion of Jio’s customers being on long-tenor plans, on which tariff hikes will be implemented only in Q1 FY21.
In addition, sale of incremental Jio phones led to slower growth in ARPU. Reliance Jio’s monthly data and voice usage per user was at 11.3GB and 771 minutes, respectively.
Jio continued to gain market share at the expense of India’s third-largest telco, Vodafone-Idea , as it added 18 million subscribers to reach a customer base of 388 million, the industry’s highest.
Fitch expects Jio’s FY21 mobile revenue to increase by at least 20%, led by higher monthly ARPU of ₹147 and subscriber additions of 30 million (FY20: 80 million).
5G spectrum auction looks increasingly improbable in 2020 in the light of incumbent telcos’ limited financial flexibility, a high base price of $7 billion for pan-India 5G spectrum in 3.3GHz-3.6GHz bandwidth and a limited business case for 5G when 4G penetration is only about 50%. Bharti and Vodafone Idea have publicly stated that they will not participate in 5G auctions at such high prices.
According to Fitch, the revenue market share is consolidating fast at Jio and Bharti, with Vodafone Idea rapidly losing market share. Vodafone Idea lost about 131 million subscribers in the last six quarters and is struggling to service its debt due to stagnant EBITDA generation, which is insufficient to cover its interest costs.
However, Bharti’ management is confident that the pandemic will have limited impact on FY21 EBITDA growth, which it forecasts to be at least 25% (FY20: 25%), supported by ARPU growth to ₹170-175 a month. The management says that data growth has increased by 20%-25% in the short-term as users work from home and upgrade to higher ARPU plans.
