'Telcos may do well in Q1; tariff hikes likely in H2,' say analysts

New Delhi: Telecom operators are expected to post single-digit sequential growth in revenues in the June quarter, largely due to stable subscriber growth and premiumisation, aided by an additional day in the period, according to analysts.

They, however, underlined that absence of tariff hikes will weigh on quarterly earnings, forecasting telcos to raise tariffs in the fiscal second half.

The sector is also expected to see steady growth in net user additions, with Bharti Airtel and Vodafone Idea (Vi) expected to add 3.5 million and 500,000 net users, respectively. Combined with premiumisation, where users are inclined towards using more 4G/5G data or migrating from a 2G connection to 4G, average revenue per user (ARPU) is expected to grow by around 5% on-year.


Revenue growth will notably be achieved without any benefit from tariff increases, as the effect of the previous tariff hike has now been baked in.

Going forward, Axis Capital expects operators to raise tariffs by 10-12% over the next 3-6 months. JM Financial is projecting a 12-15% increase in the second half, while Morgan Stanley is estimating a steeper 16-20% tariff hike in 4G/5G plans by November-December.

"There is also improved visibility of 12-15% tariff hike in the next 3-6 months with easing of inflationary concerns post opening of Strait of Hormuz (given the last tariff hike was in Jul'24), coupled with the government's intent to ensure a '3+1' player market and the industry's requirement to improve RoCE amidst inability to monetise the significant incurred 5G capex," JM Financial said in a report. It expects the industry to shift to a 'pay as you use' model for data services, which is likely to aid long-term ARPU growth.

ICICI Securities said it expects Bharti Airtel's ARPU to grow 4.8% on-year to ₹262 in the June quarter, while that of Vi is projected to increase 7.2% to ₹177. Airtel's India business is expected to expand 8.7% to ₹41,200 crore, while Vi is estimated to clock a 4.6% revenue growth, largely driven by ARPU expansion.

Brokerage Morgan Stanley, though, said Airtel's core Indian business earnings have slowed in the absence of tariff hikes. It expects the company's India mobile business to report a 7.8% on-year growth in revenue to ₹29,500 crore. The telco's non-mobile business is expected to expand faster than mobile thanks to healthy growth in home broadband and enterprise offerings.