According to ICICI Securities’ most recent note, three telecom operators—Vodafone Idea Ltd. (VIL), Bharti Airtel Ltd., and Reliance Jio (RJio)—look poised to achieve revenue increases of between 19–21% over the next three quarters. Citing factual data from previous rate rise cycles, the domestic broking predicted that the stock performance of telecom companies would closely follow the market share trend.
Bharti Airtel did well on revenue translation during the last two rate rises, whereas RJio did well on adjusted gross revenue (AGR) market share. According to ICICI Securities, Bharti Airtel and RJio’s respective revenues might increase by 20.50 per cent over the next three quarters. Sales for Vodafone Idea increased by 18.7% during the same time. According to the study, telecoms’ market share may essentially stay the same.
The main rationales for our intense attention to AGR’s market share are: According to empirical data, a telecom operator that increases its market share also does better in terms of stock returns. Consequently, the stock return performance trajectory may closely resemble AGR’s market share, the report stated, adding that gaining market share also means a quicker rise in operator profitability, which justifies higher values.
Finally, a larger free cash flow (FCF) is implied by a greater average growth rate (AGR), which supports a stronger balance sheet. A telco’s positive cycle is initiated by a gain in AGR market share and usually ends with rate hikes. “Bharti and RJio have been adding almost similar incremental AGR over the past 10 quarters, and this has helped Bharti narrow its AGR market share gap vs RJio,” the statement stated.
There was a discrepancy between the growth in ARPU and AGR growth for telecoms in the last two tariff hikes, despite the boost quantum being almost the same for each operator. This suggests revenue translation leakage. SIM consolidation, subscriber mix (post-paid category had no price rise in the past), and some customers choosing extended validity (365 days) recharge before the new pricing went into effect were the reasons for the revenue leakage.
Recharges were delayed for a while following the pricing rise, which hampered ARPU and AGR growth. In terms of stated revenue basis, Bharti performed better than RJio and VIL throughout both rate hike events. RJio, however, has performed well in terms of AGR market share, followed by Bharti. The discrepancy between stated performance and AGR is challenging to reconcile. Even so, Bharti’s incremental AGR—which was far lower than RJio’s—has improved or surpassed RJio in several quarters. According to ICICI Securities, VIL’s AGR market share has decreased through rate rises.
Operators had raised charges by 15–40% across all prepaid categories during the significant tariff rise that occurred in December 2019. Tariffs that are paid after were not altered. For Bharti/VIL, the anticipated impact on revenue was 21% apiece, while for RJio, it was 35%. Because of the substantial SIM consolidation, this rate rise was the lowest in terms of revenue translation. The rate rise was most effectively translated into income for Bharti Airtel, suggesting that Bharti profited from SIM consolidation.
Over the period from Q4FY20 to Q3FY21, the expected impact of the tariff hike was a 21% revenue growth, whereas Bharti’s revenue increased by 30%. Revenue increased by 29% from Q4FY20 to Q3FY21, despite RJio’s December 2019 calculations showing a 35% benefit from tariff increases. During the same period, VIL’s revenue decreased by 1% compared to a projected 21% rise in sales.
Two years after the initial spike, in November 2021, there was a second significant jump in tariffs. Operators raised rates in all pre-paid categories by 20–25 percent. Once more, post-paid rates remained unaltered. For Bharti and VIL, the anticipated impact on revenue was 16% apiece; for RJio, it was greater, ranging from 17% to 18%.
RJio had the largest estimated benefit, ranging from 17 to 18%, yet revenue increased by 16% from Q4FY22 to Q2FY23. Bharti, revenue growth from the rate hike was expected to be 16%, but it increased by 17% from Q4FY22 to Q2FY23. In contrast to the initial price rise reduction, Vodafone Idea’s revenue increased by 9% compared to a projected 16% growth in revenue. However, the telecom operator suffered from a declining customer base.
