SINGAPORE: Fitch Ratings on Friday forecast the Indian telecom industry’s mobile segment EBITDA to increase by at least 40 per cent in the financial year to end-March 2021 (FY21) compared with 25 per cent in FY20 following strong performances by market leader Reliance Jio and second-placed Bharti Airtel Ltd in 9M FY21.
EBITDA (earnings before interest, taxes, depreciation and amortisation) growth at Jio and Bharti will be driven by higher tariffs, user migration to 4G and high monthly data usage of 12GB to 16GB per user as pandemic-led restrictions encouraged users to work from home and use remote-access technologies. Jio’s revenue and EBITDA grew by 33 per cent and 50 per cent respectively year-on-year in 9M FY21 while Bharti reported Indian mobile revenue and EBITDA growth of 26 per cent and 48 per cent respectively during the same period. Jio, which leads the mobile market with 411 million customers, added 41 million subscribers during last four quarters and increased its monthly average revenue per user (ARPU) by 18 per cent year-on-year to Rs 151 (2 dollars).
Bharti gained 25 million customers to reach a total subscriber base of 308 million, higher than Fitch expectations, and reported a 23 per cent year-on-year rise in monthly APRU to Rs 166, driven by a 34 per cent increase in 4G customers to 165 million, 20 per cent growth in monthly data usage per user to 16.7GB and a 14 per cent rise in voice usage to 1,027 minutes. Jio and Bharti will likely increase their combined revenue market share to 80 per cent at the expense of third-placed Vodafone Idea, which will lose 50 million to 70 million subscribers in the next 12 months. “We forecast industry monthly ARPU to grow by 5 to 10 per cent in FY22 as 2G and 3G customers gradually move to pricier 4G price plans,” said Fitch. Another tariff increase is possible in 2021 because the struggling Vodafone Idea, whose ARPU is 30 per cent lower than Bharti’s, may raise tariffs to improve cash flows. ARPUs have been rising since December 2019 when all telcos raised them by around 30 per cent. The pandemic-led economic slowdown has had little impact on Indian telcos as data traffic continues to increase even after the lockdowns were lifted. Migration of users to 4G will likely accelerate as Indian smartphone shipments sharply rebounded in 2H20.
Fitch said sector capex is likely to remain flat in FY22 barring spectrum payments as both Bharti and Jio front-loaded investments to expand 4G coverage and capacity and built up fibre networks and in-building coverage. Bharti could generate small positive free cash flow in FY21 as operating cash generation is likely to rise and will be used to fund flat core capex, excluding one-time spectrum payments and adjusted gross revenue dues. “We believe that Bharti and Jio are likely to bid to renew their expiring spectrum in the upcoming auctions in March 2021 and may also bid to acquire spectrum in the sub-1GHz band which can be used for 5G services. We have assumed Bharti will set aside 500 million dollars in FY21 and 1 billion dollars in FY22 for upfront spectrum investments. We believe that the company is unlikely to launch 5G services before 2022.” The negative outlook on Bharti’s IDR reflects the negative outlook on India’s long-term foreign-and local-currency IDRs (BBB-minus).
It does not reflect Fitch’s view of its underlying credit profile which has been improving, benefiting from strong growth in the Indian and African wireless operations. Bharti’s African subsidiary Airtel Africa also reported strong results with revenue and EBITDA rising by 13 per cent and 26 per cent respectively on a reported currency basis during 9M FY21, led by an 11 per cent increase in subscribers to 119 million and 9 per cent growth in ARPU to 2.9 dollars.
