According to a report by JM Financial, capital expenditure (capex) for Bharti Airtel and Reliance Jio is expected to decline, improving the two telcos’ free cash flows (FCF). Due to capex normalisation and regular pricing hikes, Airtel and Jio’s FCF will increase beginning in FY25.
Airtel’s consolidated FCF is likely to move up to Rs 400-450 billion in FY25, up from Rs 300 billion in FY23, allowing it to accelerate the reduction of its net debt, whereas Jio’s FCF is expected to reach Rs 245 billion in FY25, up from roughly Rs 146 billion in FY23. On the other hand, the report states that Vodafone Idea Limited’s (Vi) capex is expected to remain subdued, owing to the telco’s much-delayed financing.
According to the report, if tariff hikes are delayed in the near term, the market will rapidly shift to a duopoly, which will boost the structural average revenue per user (ARPU) growth story. The next round of headline tariff hikes is expected to occur in the second or third quarter of FY25. JM Financial estimates that the industry needs to achieve an ARPU of Rs 267-297 in the next 3-4 years for a pre-tax return on capital employed (RoCE) of 12-15 per cent. The brokerage said that the delay in tariff hikes will eventually contribute to ARPU growth. Customer upgrades to mobile broadband are also expected to drive up ARPU.
