The life cycle of Bharti Airtel can be compartmentalised in 3 parts. The heady and glorious days of 2002-08 (phase 1), 2010-2019 – the phase of global expansion (acquisition in Africa) and weathering the Reliance Jio storm (Phase II), 2019- (the resurgence-Phase III), according to report by Elara Securities.
“After a decade of consolidation, we are of the view that the Bharti Airtel’s big moment of hurrah has begun. It has successfully weathered the Jio storm and today, has beefed up its balance sheet and looking to lead given that it has got its mojo back,” said Harendra Kumar managing director of Elara Securities, in a recent research report.
Airtel has stealthily and yet steadily countered the negative impacts of the new operator, Reliance Jio, and survived the storm. Airtel, promoted by Sunil Mittal, has consolidated spectrum and ring-fenced its leadership in circles to counter Jio.
In March this year, Airtel acquired the Gulf Bridge international’s India submarine cable system and built an improved business case for international customers.
Jio’s strategy moved beyond playing the tariff game, with its focus now on monetising its subscriber base. There is no clear and present danger at the moment of an accentuated tariff war. In fact, any cuts in tariffs will impact Reliance’s market capitalisation more than that of Bharti Airtel.
Airtel has done everything that needs to be done to avoid risks. It has brought leverage down, listed the Africa business (this can be a future source of deleveraging) and is now capitalised to fund growth. Bharti Airtel leads in eleven circles based on VLR subscribers.
Bharti Airtel India CEO Gopal Vittal recently reiterated in his communication to employees, “The war for subscribers in India’s telecom market has reached a “decisive” phase. Bharti is targeting crossing the 35 percent revenue market share mark in the next three quarters, by “attacking” the weak spots of rivals Reliance Jio and Vodafone Idea. This is our time to lead the agenda and target a dramatic increase in our market share.”
Jio has grown at the expense of consolidating the subscribers of the long industry tail. Strain of a similar kind that led to the winding up of rest of the incumbents can be seen in Idea Vodafone balance sheet.
Even if the company fundamentals do not capitulate, its ability to compete in the current from and structure is limited. An indication is the continuous fall in its subscriber numbers. The probability that most of its subscribers over some time will move to the two leading players viz Jio and Bharti Airtel is high.
Vodafone Idea continues to lose VLR adjusted subscriber on month on month basis since the announcement of merger of Vodafone and Idea in March 2018. Vodafone Idea adjusted gross revenue (AGR) revenue is declining at double digit.
The sensitivity to rising ARPUs on a telecom company financials is well documented. Most players in the street are only watching the ARPUs at current consumption levels. Over the next five years as content migrates to more of 4K and 8K, data consumption will boom into the next level.
The chances that subscribers will move from the current plans to a higher data plan would mean almost double of the current ARPUs without the concurrent rise in costs. Additional 1GB per day consumption will lead to incremental gains of INR 82 per share.
There will be a broadband subscriber addition of 200 million with an incremental ARPU of INR 157 (consolidated ARPU of INR 277, inflation of 8 percent plus incremental data usage 10 percent), which is conservative by all accounts. This compares with ARPU of INR 250 in FY10 data package 10 years ago).