How may Bharti Airtel and Voda Idea stocks perform in the near term?

Despite an on-going recovery in the telecom sector, analysts believe the stock performance of Vodafone Idea and Bharti Airtel may remain sluggish in the near-term. Their shares have cracked around 8-14% in the past three months as the benchmark Nifty50 shed 7.5%. Going forward, likely heavy investment in the upcoming 5G auction, coupled with flat subscriber growth, may act as overhangs in the near-term.

Telecom Regulatory Authority of India’s data showed that industry-wide active subscriber base dipped by 7.8 million month-on-month in April 2022. While Bharti Airtel lost 3.1 million customers, Reliance Jio lost 0.1 million, and Vodafone Idea 3.8 million. Meanwhile, the industry-wide mobile broadband subscribers remained flat at 760 million.

Analysts at JM Financial feel the broad-based active subscriber decline suggests that the November, 2021 tariff hike-led sim consolidation is not over yet. The other near-term hiccup, in terms of higher-than-preferred spectrum prices, may result in excessive capital outgo.

Pricing concern, the nascent 5G ecosystem, and evolving use cases could also make 5G rollout granular.

Rating agency ICRA pegs capital outlay of around Rs 1-1.1 trillion. Of this, the upfront payment will be 10,000 crore rupees if telcos opt for a 30-year payment plan. However, debt levels could increase with addition of deferred payment liabilities of this auction.

That said, near-term pain points are expected to be compensated by long-term growth. ICRA expects the industry to report a growth of 10-12% in its operating income in FY23, which will translate into operating profit before interest and tax expansion by 15-18%.

Industry consolidated revenues are estimated at Rs 2.6-2.7 trillion with operating profit before interest and tax of around Rs 1.2-1.3 trillion. Meanwhile, stock-specific action and global triggers will continue to dominate Wednesday’s trading session.