Despite big 5G plans, debt-laden Airtel wobbling in war with Ambani's Jio

Airtel added 53,500 subscribers, Jio 17 million in first two months of 2019

In a war for the control of India’s billion-plus mobile-services market, tycoon Sunil Mittal seems to be floundering in the face of a juggernaut unleashed by Mukesh Ambani.

For at least a fourth quarter in a row, Mittal’s Bharti Airtel Ltd. shored up its profits with one-time gains, masking headwinds posed by upstart Reliance Jio Infocomm Ltd. Jio’s roll-out, after its 2016 debut, has knocked Airtel from its perch in a consolidation that shrank the industry to three players from about a dozen four years ago.

Airtel is struggling to add subscribers in a saturated market after Jio managed to lure more than 300 million users over the past three years -- a quarter of the world’s second-largest market. The aggressive expansion of Jio with free calls and cheaper data, backed by the deep pockets of Asia’s richest man, was bad news for highly indebted incumbents engaged in a tariff war that had pushed call rates to less than a cent.

Shriveling earnings portend further trouble for Airtel. Already saddled with more than $17 billion of debt -- the highest among Asian peers -- it is also preparing to spend billions more on 5G airwaves at a government auction in coming months. Adding to its woes, Moody’s Investors Service cut its rating to junk earlier this year.

The New Delhi-based company is counting on some asset sales, a rights issue and an initial public offering in London of its Africa unit to bolster its finances.

What Bloomberg Intelligence Says

“Airtel’s profit will suffer until Jio is ready to raise prices. It is hard to say when, but Jio may remain aggressive until it achieves the No. 1 spot in mobile revenue. In the meantime, Airtel is trying to weather through by preserving margin at the sacrifice of subscriber loss, divesting assets to ease debt burden, and raising equity to avoid a credit downgrade.”

--Anthea Lai, telecom industry analyst

Airtel said in an exchange filing Monday that a one-time net gain of Rs 20.2 billion ($291 million) on account of a credit related to “re-assessment of levies” boosted its net income to Rs 1.1 billion for the quarter through March. Analysts had predicted a loss of Rs 9.66 billion.

Although revenue rose 6 per cent to Rs 206 billion in the period, data provided by the Telecom Regulatory Authority of India show Airtel added a net 53,493 subscribers in the first two months of the year, compared with Jio’s 17.1 million. While Airtel didn’t provide user addition data for the quarter, Jio reported an increase of 26.6 million.

Shares of Airtel have advanced 17 per cent this year, compared with a 7.6 percent gain in the benchmark S&P BSE Sensex index.

In an interview with BloombergQuint earlier this year at the World Economic Forum in Davos, Mittal described conditions in India’s hyper-competitive telecommunications market as “dreadful,” predicting a possible turning point this year. “This will be the year of perhaps hemorrhaging stopping,” he said.

Airtel slipped to No. 2 in the industry last year after Idea Cellular Ltd. and the local unit of Vodafone Group Plc closed their merger to become India’s largest operator by subscribers.

In February, Airtel unveiled plans to raise as much as Rs 320 billion for a war chest to take on Jio as well as to prepare for the 5G auction. Of that, Rs 250 billion will be from a rights issue due to close May 17 at Rs 220 per share, and the rest from the sale of perpetual bonds with equity credit. Vodafone Idea proposes to raise Rs 250 billion from a rights issue.