Financial year 2023-24 saw significant changes in the dynamics of the telecom services market. After a rapid roll-out of 5G services, Reliance Jio and Bharti Airtel are now looking to cash in on the new high-speed networks they have built. Meanwhile, after several years of struggling with an enormous debt overhang, Vodafone Idea (Vi), the third largest service provider, has raised enough cash to give it a fighting chance.
Both Jio and Airtel reported encouraging results, which were in line with the consensus. Telecom service providers experienced a welcome return of some pricing power and were able to implement carefully calibrated hikes, significantly improving ARPUs. Vi also improved its ARPU.
However, all three service providers need to continue increasing their ARPUs at a reasonable pace, and find new revenue streams to offset the considerable investments made in 5G, or are being made in the case of Vi, which is now looking to roll out 5G. The new revenue streams could come from downstream activities such as data analytics, hyperscaling services and other tech services built on top of 5G and AI capabilities. Indeed, there is a global trend of telcos transforming into tech companies, and India’s service providers are likely headed in that direction.
So, a market that was an effective duopoly may see three-way competition again, which would be good for consumers. Given the many positive externalities of telecom services, it is a good thing to have healthy competition since it drives innovation and improves the quality of services.
Unfortunately, the future of Bharat Sanchar Nigam Limited (BSNL), the fourth large service provider, remains a big question mark. The PSU still has a significant subscriber base and is in charge of the ambitious plan to connect every panchayat through fibre. However, in 2023-24, BSNL continued to face huge losses and long-standing problems such as overstaffing, poor service standards and lack of capital, which have put it well behind the curve.
On the back of all the 5G activity, Indus Towers and other players along the telecom value chain, such as equipment providers like Sterlite Technologies Limited (STL) and HFCL, have delivered encouraging results. Tata Communications has also shown positive results, with its portfolio of enterprise-focused services. Although it is early days, the equipment and handset industries, along with the associated electronics and software ecosystems, seem to have been energised by the production-linked incentive schemes.
Going forward, service providers will be looking for better traction in 5G-enabled services, targeting enterprises, and will also try to convert low-end voice-only subscribers (using 2G) into data-using 4G subscribers. Vi and Airtel still have a significant number of legacy 2G users while BSNL’s entire user base is 2G.
Given the policy thrust on delivering all services digitally, there is no mental barrier to shifting up the value chain for most users. The initial investment in a smartphone and the availability of 4G/5G networks are the sticking points. Assuming the availability of networks and affordable smartphones, an entry-level prepaid data plan delivers much better ARPU compared to 2G. In addition, Airtel and Vi would be happy to shut down legacy 2G networks to eliminate the associated costs.
Rural geographies are under-penetrated, with much lower teledensity compared to saturated urban areas. As high-speed networks, including satellite broadband and BharatNet, roll out across new geographies, teledensity could rapidly increase, although new subscribers may initially generate lower ARPUs.
A roundup of the financial results of some prominent telecom players during the year 2023-24…
Reliance Jio Platforms
Reliance Jio Platforms’ (JPL) annual revenue increased by 11.7 per cent year on year to Rs 1,285 billion, led by a robust subscriber growth of 42.4 million to reach 480 million. The operating profit (earnings before interest, taxes, depreciation and amortisation or EBITDA) increased 12.8 per cent year on year. In the fourth quarter of financial year 2024, JPL’s revenue stood at Rs 338 billion, up 13.3 per cent year on year, with an EBITDA of Rs 143.6 billion, up 12.5 per cent year on year. Data traffic rose to about 148 exabytes during 2023-24, up 31 per cent year on year. Jio has around 108 million 5G subscribers, accounting for 28 per cent of wireless data traffic. AirFiber (FWA) and JioFiber have been rolled out across 5,900 towns, and digital services on these are scaling up and driving revenues. ARPU was Rs 181.70 in March 2024, up from Rs 178.80 in March 2023.
Bharti Airtel
Airtel has extensive overseas operations. Currency depreciations in Africa and other regions have led to relatively poor results in rupee terms. However, the consolidated revenues for financial year 2024 stood at Rs 1,499.82 billion, up 7.8 per cent year on year. EBITDA stood at Rs 790.46 billion, compared to Rs 717.33 billion in financial year 2023.
Airtel’s margins (EBITDA as a percentage of revenues) improved to 52.7 per cent, up 115 basis points (100 bp=1 per cent) year on year. The net profit before exceptional items stood at Rs 113.05 billion while the net income adjusted for exceptional items was Rs 74.67 billion. Consolidated capital expenditures were Rs 394.82 billion in financial year 2024.
In India (standalone operations), Airtel’s revenues stood at Rs 1,096.93 billion in 2023-24, up 12.1 per cent year on year, EBITDA at Rs 590.09 billion, as compared to Rs 510.57 billion in 2022-23, with the margin at 53.8 per cent, up 162 bps year on year. The Indian capex was Rs 333.53 billion.
In the fourth quarter of financial year 2024, mobile revenues rose by 12.9 per cent year on year, with ARPU at Rs 209 in March 2024 as against an ARPU of Rs 193 in March 2023. The company’s mobile 4G and 5G user base reportedly stood at 252.7 million during the quarter, recording a year-on-year growth of 28.6 million. Mobile data traffic was up 25 per cent year on year and homes revenues (from fibre broadband) were up 20 per cent. Airtel Business (which targets enterprises) witnessed a revenue growth of 14.1 per cent year on year during the fourth quarter.
Vi
Vi’s successful follow-on public offer (FPO) and a commitment to subscribe to fresh equity from its promoter, the Aditya Birla Group, have led to optimism. Vi now has a shot at a turnaround to become the third serious competitor in services.
The FPO raised Rs 180 billion with an oversubscription of seven times, and attracted marquee anchor investors and domestic mutual funds such as Quant and Motilal Oswal, which committed Rs 54 billion. In addition, Vi raised Rs 20.75 billion from Aditya Birla Group entity Oriana Investments by issuing preferential shares. The government remains the largest shareholder. Post-dilution, its stake will be reduced to 24 per cent.
The proceeds will help fund capex plans of Rs 127.5 billion for network expansion. The company aims to raise another Rs 350 billion in debt. Apart from 5G, it is looking at 4G network expansion. A part of the proceeds will be used to clear the Rs 21.7 billion payable for the first instalment of spectrum bought in 2021-22. The moratorium on spectrum dues ends in September 2025, and Vi will have to pay Rs 21.7 billion by March 2026 and annual dues of Rs 415 billion every fiscal during financial years 2027-30.
Vi lags far behind Jio and Airtel, which have already rolled out 5G, but if it can roll out 5G within the next six to nine months, it may become competitive. Vi’s ARPU stands at Rs 146 as compared to Rs 135 a year ago. Only 126 million of its 213 million subscribers are on 4G.
Even Rs 550 billion (Rs 250 billion from the FPO and the remaining to be raised over three years) may not be enough to enable Vi to compete on a sustainable footing. Goldman Sachs reckons Vi will need to raise Rs 650 billion over the next two years unless there is a big ARPU jump.
In the fourth quarter of financial year 2024, Vi reported a consolidated net loss of Rs 76.75 billion, which was more than the Rs 64.19 billion loss it registered in the corresponding period in the previous year. Revenues during the quarter stood at Rs 106.07 billion, marginally better than the Rs 105.32 billion a year ago. The EBITDA stood at Rs 43.36 billion, up from Rs 42.1 billion year on year. Annual revenue grew to Rs 426.5 billion in 2023-24 as compared to Rs 421.8 billion in 2022-23, an annual growth of 1.1 per cent. Vi’s annual EBITDA was reported at Rs 840 billion, up from Rs 830 billion in the previous year.
The total debt from banks and financial institutions stood at Rs 40.4 billion, plus optionally convertible debentures of Rs 1.6 billion. Bank debt reduced by Rs 70.9 billion in the last year, but payment obligations to the government stood at Rs 2.034 trillion, including deferred spectrum payment obligations of Rs 1.33 trillion and an AGR liability of Rs 703 billion.
Vi has gone to court with a curative petition, which could result in a substantial reduction in its AGR dues. There is also a chance that the government, which has already converted debt to equity once, could do so again.
Until mid FY2026, Vi has breathing space. It must use that time well.
Tata Communications
Tata Communications (erstwhile VSNL) owns physical assets such as undersea cable and focuses on enterprise clients. The company reported flat revenues and lower EBITDA margins for the fourth quarter of 2023-24. Its consolidated revenue grew 1 per cent quarter on quarter to Rs 56.9 billion, while data revenue grew 1 per cent. EBITDA increased 0.8 per cent quarter on quarter to Rs 46.6 billion. The consolidated 2023-24 revenue grew 18 per cent year on year, while the EBITDA and adjusted profit after tax (PAT) declined 2 per cent and 30 per cent respectively. Data revenue contributed 82 per cent of consolidated revenue.
The company is integrating two acquisitions, Switch and Kaleyra, which have had a negative short-term financial impact. Revenue from the acquired businesses grew 4 per cent quarter on quarter to Rs 9.5 billion in the fourth quarter. Meanwhile, consolidated EBITDA from the companies declined 7 per cent quarter on quarter to Rs 10.6 billion, due to operating losses in the data segments.
Adjusted for these losses, consolidated EBITDA grew 1.3 per cent quarter on quarter to Rs 10.4 billion, with the margin at 21.9 per cent. The company’s long-term guidance targets 23-25 per cent EBITDA margins. Turnarounds in Switch and Kaleyra are critical to achieving the guidance for the overall EBITDA margins.
Due to the acquisitions, the net debt increased by Rs 34 billion year on year to Rs 91 billion in 2023-24. The net debt-to-EBITDA ratio increased to 2.4x as against 1.6x in the previous year. The operating cash flow declined 30 per cent year on year to Rs 28 billion, owing to the high working capital needs of Rs 11 billion. Capex rose by 40 per cent year on year to Rs 21 billion. The investments should lead to better revenue growth through financial year 2025.
Indus Towers
Indus Towers reported Rs 286 billion in revenues for 2023-24, almost flat compared to the Rs 284 billion in 2022-23. It reversed a charge of Rs 54 billion taken on “doubtful receivables”, meaning dues it was uncertain that a major client (Vi) would pay. Vi’s potential turnaround and improved cash situation led to its clearing over Rs 37 billion in dues. This has been a major relief for Indus Towers. It registered an EBITDA of Rs 150 billion as against Rs 101 billion in the previous year while its net income jumped to Rs 60 billion from Rs 20 billion. Given Airtel’s continuing 5G roll-outs and Vi’s initiation of 5G roll-outs, there is visibility for future income expansion. The company’s order book is expected to grow for the next two quarters, and capex may remain elevated.
However, the Vi factor remains a cause for concern. Apart from timely payment of dues, Vi owns a 21 per cent stake in Indus. A forced stake sale at some stage is not out of the question, which could impact the market valuation of Indus Towers.
BSNL
As mentioned above, BSNL is in dire straits financially. It had not submitted its full year accounts at the time of writing (BSNL is unlisted with the government as the sole shareholder). It declared its total income as Rs 114 billion for the first three quarters of financial year 2024 versus Rs 140 billion in the corresponding period of 2022-23. It reported losses of Rs 45.2 billion as compared to losses of Rs 54 billion in the corresponding period in 2022-23.
HFCL
HFCL, a manufacturer of fibre, electronics and telecom equipment, reported revenues of Rs 44.65 billion in financial year 2024, 5.8 per cent lower than the Rs 47.43 billion reported in financial year 2023. It reported a net income of Rs 4.67 billion, which was 46 per cent higher than the Rs 3.19 billion declared in the previous year. It claims an order book of over Rs 75 billion, which should give revenue visibility through financial year 2025 and beyond. Given its focus on infrastructure and its presence in high-end radars, etc., the company is expected to do well.
Sterlite Technologies
STL management expects a short-term softening of demand for its key segment, optic fibre cables, but remains optimistic about strong long-term demand. The company has an open order book of Rs 103 billion, which is nearly double its 2023-24 revenues of Rs 54.78 billion. Revenues dipped 21 per cent in financial year 2024 compared to the previous year (Rs 69.2 billion) due to a lower volume of OFC offtake. EBITDA stood at Rs 6.27 billion as against Rs 9.3 billion in financial year 2023. Net losses amounted to Rs 510 million versus net profits of Rs 2.45 billion in the previous year. The company reported a reduction in net debt of Rs 3.34 billion and is considering a reorganisation of the group structure, with the global business demerged into another listed company, STL Networks.
Conclusion
The telecom landscape is undergoing a transformation with the rise of 5G networks and AI’s promise of bringing in new revenue streams. The policy attempt to build a strong ecosystem of equipment manufacturing, including semiconductors, should yield results in the next two fiscals. The positive externalities of a strong telecom ecosystem will accelerate macro-economic growth.
Devangshu Datta
