In its sector outlook for 2023, CLSA underscored its positive stance on the Indian telecom industry, stating that revenue for the Indian telcos is expected to grow strongly this year, following a 14 percent YoY revenue growth in 2022. The revenue growth was likely driven by tariff hikes led by Bharti Airtel, followed by Vodafone Idea and RJio, it said.
The sector ARPU (average revenue per unit), when adjusted for inflation, is still 17 percent below pre-RJio launch, and CLSA expects Bharti Airtel to lead tariff hikes to an ARPU of Rs. 236 by FY25, while the company targets Rs. 300 ARPU.
"We factor in 20% cumulative tariff hikes for Bharti, Vodafone Idea, and RJio from 4QFY23 to FY25 and forecast a 14% CAGR in sector revenue to Rs. 2,846 billion or US$36 billion by FY25CL," CLSA said.
Bharti, with its 5G NSA rollout, is targeting to cover 5,000 towns by March 2024, while RJio, with its SA 5G rollout, targets to reach pan-India coverage by December 2023.
Bharti’s and RJio’s early 5G monetisation would be led by top-end mobile post-paid subscribers alongside increases in mobile network capacities for both companies, it noted.
Vodafone Idea is in financial trouble because of its enormous debt of US$28 billion and may fail to bring out 5G, it added.
India currently has a base of 70 million 5G smartphones, and CLSA estimates that by March 2025, mobile data penetration will have increased by an additional 11 percentage points to 80 percent.
As a result of Jio and Airtel's nationwide 5G rollouts, the brokerage forecasts that India's smartphone market will reach 700 million users by March 2025.
Adding to that, 5G will go beyond mobile to enterprise and 5G fixed wireless access (FWA) services. 5G FWA revenue could be $5/9 billion per year, with RJio aiming for 100 million 5G FWA users.
CLSA highlighted that 2023 will see big events such as 5G rollouts, tariff hikes, government rules on direct 5G spectrum to enterprises, the finalization of a new telecom regulatory bill, and a likely RJio IPO.
Private networks, if allowed, may eat into 5G operators’ enterprise service opportunities. Vodafone Idea could benefit from a new telecom bill if it were implemented, as it would grant the government powers to waive charges or grant exceptions.
Bharti Airtel is CLSA's top pick. It reiterated its "buy" call on the stock with a target price of ₹1,040 apiece, which reflects a potential upside of nearly 36 percent from the stock's previous closing price.
For Indus Towers, the brokerage reduced its rating from "buy" to "outperform" and trimmed the target price to ₹215 apiece from ₹245 earlier. Similarly, CLSA downgraded Sterlite Tech from "buy" to "outperform" with a new ₹200 target price per share. Despite the global acceleration of digital networks, the brokerage reduced its estimates due to rising debt of ₹32 billion.
The brokerage continued with the "sell" rating on Vodafone Idea with a target price of ₹6 apiece. While, it upgraded Tata Communications, an enterprise data play, to a "buy" rating from "outperform" earlier with a target price of ₹1,646 per share.
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