Will Bharti Airtel stand up to Reliance Jio's threat? Yes, say analysts

Experts advised investors to consider Airtel stock as a long-term investment opportunity. They see up to 20 per cent rise on the counter in the coming 12 months. 

By Aprajita Sharma  
Thursday, September 29, 2016

While the upcoming two-three quarters are expected to pinch the subscriber base of Bharti Airtel and other incumbents due to Reliance Jio's mega entry, the Sunil Mittal-owned telecom firm looks all set to compete with RJio's challenge in the longer haul, said analysts, citing the operator's strong spectrum holding and enough war chest at disposal to offer discounts to match Jio's freebies.

Airtel, in fact, will be the only telco to deleverage itself in the next two years, believes a brokerage. The stock of the telecom firm may have lost 9 per cent intraday on September 01, when Mukesh Ambani announced RJio's launch, it has recovered over 3 per cent since then (till Wednesday's closing). Experts advised investors to consider Airtel stock as a long-term investment opportunity. They see up to 20 per cent rise on the counter in the coming 12 months. 

"While there might be some near-term earning pressure with the likely announcements of discounts and offers by RJio - which will have a bearing on numbers with lower than expected earnings over the next 2-3 quarters - the need to acquire additional debt or equity will depend on future business exigencies. Bharti Airtel has enough spectrum at present and have the capacity to acquire additional spectrum as and when future need arises," said Gaurang Shah, Head Investment Strategist, Geojit BNP Paribas.

Voice revenues to take a knock ...

RJio's unlimited free voice calling is something Bharti Airtel will find hard to compete with. Brokerage ICICI Securities believes Bharti would see higher decline in voice revenue due to highest post-paid subscriber market share (33 per cent) that would potentially see maximum cut in voice realisation.

The brokerage expects Bharti's voice revenue to decline by 2.2 per cent and 5 per cent, respectively, in financial years 2017 and 2018, hurt by nearly 10 per cent drop in voice realisation per minute (RPM) in each of the years.

The voice RPM includes revenue earned from outgoing minutes, termination charges on offnet incoming calls (14 paise per minute as fixed by the regulator for calls within India and 53 paise per minute on international minutes) and on-net incoming call (which is zero).

"Our sensitivity analyses shows 10 per cent increase in incoming minutes leads to 1 per cent increase in voice Average Revenue per User (ARPU) but reduces voice RPM by 1.4 per cent," said the brokerage.

… but data revenues to compensate

In the past two years, Bharti's execution in data business has been impressive with data revenue market share gain of 800 bps to 34 per cent in FY16 (35.6 per cent at Q4FY16).

ICICI Securities believes Bharti will continue to capture higher incremental data revenue market share on account of superior data spectrum holding market share and wider rollout of data network both in 3G and 4G.

"Despite RJio's launch, we expect Bharti's data revenue to witness 28 per cent CAGR over FY16-18E, which would more than off-set weaker voice business. This would be led by strong 52 per cent CAGR in 3G/4G subs during FY16-18E, while ARPUs are seen dropping by 11.3 per cent in the same period," said the brokerage.

Should you invest?

Gaurang Shah of Geojit BNP Paribas believes the decision to invest in telecom stocks should depend entirely on the risk appetite of the investor.

"There is no foreseeable improvement in earnings of telecom players over the next 2-3 quarters. If the investor lacks the risk appetite to invest in the telecom sector, he should look at other sectors which are giving attractive returns. For an investor with a 2-year plus time horizon, we recommend Bharti Airtel as a top pick followed by Idea," said Shah.

For ICICI Securities, Bharti Airtel remains the preferred pick in the telecom sector. It maintained 'buy' rating on the stock but with a revised target price of Rs 390 (Rs 460 earlier). 

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