Vodafone Idea’s ARPU in the December quarter stood at Rs 109, up 22.5 per cent over the year-ago quarter. The company is expected to post a 3.7 per cent increase in ARPU in the March quarter to Rs 113. CLSA expects the company’s ARPU, which lagged peers by 15-19 per cent, to grow 30 per cent by FY22 and the subscriber loss to decelerate. While the stock has nearly trebled over the last three months, the brokerage expects further upside and has set a target price of Rs 12. Bharti Infratel’s gains also ride on the survival of Vodafone Idea, as the collapse of the company will leave it with a single anchor tenant across its towers, which is not a viable proposition.
Though the Street is bullish on the sector, not all are on the same page about the sector remaining a three-player market. Rajeev Sharma, head of institutional research at SBICAP Securities, says: “For the telecom sector
to settle to a three-player market, Vodafone Idea needs a strategic investor to take a substantial stake, an extended payment period on adjusted gross revenues, and finally meaningful capex on 4G.” The company needs to gain market share across circles to be in the reckoning, he adds.
While the sector has already been rerated, the key trigger remains a further rise in ARPUs. Tariffs were last raised in December by 25-40 per cent. Most analysts expect ARPUs to move to the Rs 200-mark, from the current Rs 154 for Bharti Airtel and Rs 130.6 for Reliance Jio.
The increase in ARPUs is expected, given the low mobile revenue to GDP ratio in India, a fall in competitive intensity, and pricing discipline.
Analysts at Jefferies expect sector revenues to double to $38 billion by FY25, from $19 billion in FY20. Strong subscriber addition for Bharti Airtel and Reliance Jio
after the tariff hike is an indication that customers have accepted the increase. The improvement in ARPU is also expected to come about on higher 4G subscriber additions. In the near term, the Street will keep an eye on the Supreme Court decision on AGR and possible moves by the government to ensure the survival of Vodafone Idea.