Bharti Airtel, Reliance Jio gain from debt-laden Vodafone Idea's pain

The two firms' revenue market share has risen 1,300 bps in two years

telecom
Many analysts believe history could repeat if Vi calls it quits because of mounting losses
Krishna Kant Mumbai
4 min read Last Updated : Aug 06 2021 | 12:07 AM IST
The growing financial and operational misery of Vodafone Idea (Vi) – the country’s number three mobile operator – has become an opportunity for the company’s two big rivals Bharti Airtel and Reliance Jio.

The two firms’ stock prices shot up on Thursday, spurred by the worsening of Vi’s financial outlook after Kumar Mangalam Birla resigned from the company’s board on Wednesday.

Bharti Airtel was the top-performing index stock on Thursday and closed the day with gains of 4.3 per cent. At one time, the stock was up 8 per cent intra-day — its best performance over the last year. Reliance Industries, on the other hand, ended the day with gains of 1.4 per cent. In comparison, the benchmark NSE Nifty50 was up just 0.22 per cent.

Thanks to Thursday’s gains, Bharti Airtel has risen 6.6 per cent this week, while RIL has gained 4.8 per cent. In comparison, Vi has lost 28 per cent of its market capitalisation in the last four trading sessions. (See the adjoining charts)

Similarly, Bharti Airtel was the top-performing index stock in FY20, when Vi’s financial troubles began to mount after the Supreme Court’s verdict on adjusted gross revenue issue. The company’s market capitalisation shot up 80 per cent that fiscal. Birla’s exit from Vi and his offer to give away his group’s stake in the company has created a leadership vacuum at the top, creating uncertainty about Vi survival as a going concern.

This, analysts believe, is positive for Bharti Airtel and Jio, as they are expected to grab more subscribers and revenue share from Vi, eventually leading to a duopoly in the telecom sector. 


Airtel and Jio together have already raised their revenue market share by nearly 1,300 basis points (bps) in the last two years from 54.4 per cent in FY19 to 67.4 per cent in FY21. Vi’s revenue market share, meanwhile, declined from 29.8 per cent in FY19 to 22.5 per cent in FY21. One basis point is one-hundredth of a per cent.

While in the past, Reliance Jio has gained maximum market share, many analysts are now raising the bets on Bharti Airtel. "Bharti Airtel's superior execution quality is reflected in its strong performance over the last four quarters, with consolidated Ebitda growth of 30 per cent YoY despite no tariff hikes. It has also added subscribers consistently and achieved revenue market share gains,” says Aliasgar Shakir of Motilal Oswal Financial Services in a recent report.

There is also some history behind the Street’s optimism on Airtel. In the past, it has been the port-in operator of choice whenever an incumbent operator has shut operations. For example, when Telenor shut its India operations in 2017 after the entry of Jio, it sold its business to Airtel and most if its customers were ported to the Airtel network. Similarly, Tata Teleservices transferred its entire network and subscriber base to Airtel, when it shut its mobile operations in 2019. And the pattern was the same when Loop Mobile closed operations in 2019. All its subscribers were given a default option to port to Airtel’s network.

Many analysts believe history could repeat if Vi calls it quits because of mounting losses. Even rating agencies remain optimistic on Airtel, despite its large debt and still poor profitability and financial ratios.

“While Bharti Airtel already has an established market position in the Indian telecom industry in terms of both subscriber market share (SMS) and revenue market share (RMS), its market position has strengthened further over the past year. The increasing proportion of high-ARPU data customers, along with the rising subscribers, augurs well for Airtel’s revenue growth,” say analysts at India Ratings & Research.

Topics :Telecomtelecom sectorBharti AirtelReliance JioVodafone Idea

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