Telecom industry's revenue growth may improve to double digits in FY21

Analysts project double-digit growth in FY21 to around 12%, largely driven by Jio

While the telecom industry’s revenues declined in the January-March quarter, analysts say that the sector’s revenue growth could improve to double digits in FY21 to around 12 per cent, largely driven by Reliance Jio.

For the current financial year, analysts expect a modest 7-8 per cent year-on-year (YoY) growth (without interconnect rate), assuming no price hike happens.

Adjusted gross revenue (AGR) for the industry, including national long distance (NLD) revenue and excluding Reliance Communications, declined 1 per cent quarter-on-quarter (QoQ) to Rs 31,520 crore. NLD revenue was down 4 per cent QoQ to Rs 6,800 crore, driven by an 18 per cent decline for Airtel. 

Jio recorded revenue growth in 21 circles and it commands the top position in 13 circles with a revenue market share of 31.7 per cent (against 29.9 per cent in Q3FY19), according to an analysis of telecom financials released by the Telecom Regulatory Authority of India (Trai). 

In comparison, Airtel lost market share in 13 circles and is now the leader in only one circle — Karnataka. Vodafone Idea is the leader in five circles, but notably, has lost share in 12 circles.

At this rate, analysts feel that Jio would reach its target 50 per cent revenue market share in the next four-five quarters, after which the tariff is expected to rise. 

Airtel and Vodafone Idea both saw an adjusted gross revenue (AGR) decline in the quarter. Airtel saw an 11.4 per cent sequential AGR decline, with revenue market share at 27.3 per cent while Vodafone Idea recorded flat QoQ AGR, with revenue market share of 32.2 per cent.

Vodafone Idea lost market share in 14 circles which contribute 50 per cent of its total AGR, whereas Jio gained market share in these circles. 

“We don’t see mobile tariffs improving anytime soon but we believe that tariff improvement may be 2-3 quarters away. Going forward, average revenue per user (ARPU) improvement is likely to be driven by the ability of telcos to charge for digital offerings and Airtel seems most suitably placed to benefit,” wrote Rajiv Sharma of SBICap Securities.

Motilal Oswal Research, however, noted that the pace of decline has reduced significantly compared to the high single-digit fall seen until two-three quarters back.

“In our view, industry ARPU down trading is now largely behind as there is limited price differential among the top three players. However, once all the three players come on a par in terms of network capability, the subscriber churn will likely reduce, shifting the focus again to ARPU accretion,” wrote Gautam Duggade of Motilal Oswal Research.

As such, analysts at JM Financial felt that without any price hike and based purely on subscribers upgrading from feature phones to smartphones or JioPhones, the industry revenues may witness a modest 7-8 per cent YoY growth in FY20 without interconnect rate cut. 

The sector revenue growth, analysts feel, would be largely driven by Jio. 

“Jio continues to enjoy a strong position in B and C circles and commands number one position in 13 circles, similar to the last quarter. These circles contribute 58 per cent of Jio’s revenue and 50 per cent of industry revenue,” noted Naval Sheth, research analyst, Emkay Global.

While Airtel reported revenue decline in 12 circles compared to 15 circles in Q3, it has lost leadership position in Delhi, Andhra Pradesh and Tamil Nadu which contribute almost 30 per cent of the revenue share. 

Analysts further noted that some of the circles saw a steep shift in revenue from one operator to another. For example, in Delhi, AGR declined by 47 per cent for Airtel but grew 74 per cent for Vodafone Idea.