Post July 2024 tariff hikes, there has been a diverging trends among the three telecom players, with Bharti Airtel Ltd continuing to be the biggest beneficiary. Despite Vodafone Idea's large capex plans, Bharti Airtel and RJio are seen gaining market share, given their superior free cash flow generation and deeper pockets, MOFSL said in its latest note on telecom sector.
Given the consolidated market structure in the Indian telecom industry, higher data consumption, one of the lowest ARPUs globally, and inadequate returns generated by telcos, MOFSL expects at least one more round of tariff reset.
It is building in a 15 per cent tariff hike or Rs 50 per month rise in the base pack in December 2025. It preferred Bharti Airtel (Buy, target price Rs 1,990) and RJio (RIL, Buy, target Rs 1,605) in the telecom space.
MOFSL said the tariff hike has helped keep VIL stay afloat over the past five years but it has not benefited to the full extent, given the continued subscriber churn. "Vodafone Idea Ltd is embarking on a significant capex cycle (Rs 50,000-55,000 crore over the next 2-3 years) to bridge the network gap with peers. However, we believe VIL’s capex plans are contingent on a debt raise (which has proven elusive so far) and further relief from the GoI," MOFSL said.
Given VIL's inferior subscriber mix and continued subscriber declines, the benefits of tariff hikes have been limited. Despite three rounds of smartphone tariff hikes and near doubling of popular plan pricing, VIL's wireless revenue is still 2 per cent below its wireless revenue in September 2019, as it continued to lose subscribers.
"Even in the latest tariff hike (July 2024), VIL's annualised wireless revenue is up by a modest 7 per cent (or Rs 2,600 crore) as compared to the blended 17 per cent tariff hikes. We believe a stabilisation of subscriber base is the single most important driver for Vi’s long-term survival," MOFSL said.
On the other hand, driven by superior tariff hike flow-through and improvement in subscriber net additions, Bharti outperformed peers on most of the metrics in Q3FY25. As per MOFSL's estimate, Bharti gained 45 basis points (bps) QoQ (104 bps YoY) in subscriber market share among the three private telcos, while VIL lost 55 bps QoQ (down 155 bps YoY).
"Similarly, on our estimates, Bharti gained 80 bps QoQ (up 225 bps YoY) in wireless revenue market share among the three private telcos, while RJio lost 50 bps QoQ (down 70 bps YoY) and VIL lost 30 bps QoQ (and 160 bps YoY) in Q3FY25," MOFSL said.