 "Reliance Jio")
Incumbent telecom players Bharti Airtel and Idea Cellular suffered huge cuts in their price targets as analysts feared Jio's launch would disrupt the $28-billion Indian telecom market.
Influential foreign brokerages Goldman Sachs, Credit Suisse and JP Morgan have cut their 12-month price targets for Airtel and Idea by as much as 19%.
Shares of London-listed Vodafone Plc, which derives over a tenth of its revenues from the Indian market, too fell 3% on Thursday to its lowest level in more than a month.
Shares of Airtel and Idea recouped some of the losses on Friday, gaining 2.7% and 0.4% respectively. Nevertheless, Airtel and Idea are still down four% and 10% respectively and have lost market capitalisation of Rs 3,403 crore and Rs 5,157 crore since Reliance Industries (RIL) raised the curtains on its much-awaited telecom foray on Thursday.
Meanwhile, shares of RIL extended their two-day loss to 4.3% on concerns over break-even given Jio's high capex spends of over $20 billion. RIL even briefly ceded its position as the country's second-most valuable company to HDFC Bank on Friday's trade. The company has lost Rs 14,640 crore (over $2 billion) in market capitalisation in last two trading sessions.
In a move seen as aggressive, Jio has announced free voice calls across network and data charges that are 30-50% lower than that charged by incumbents including Vodafone and Airtel.
"These disruptive changes would create pressure on incumbents on multiple fronts," said analysts at Jefferies in a note. The brokerage says Jio's launch has raised doubts over the future of the voice market, which currently accounts for 80% of telecom revenues. It also forecasts loss of subscriber and revenue share and high cost pressures for incumbents.
"We think that Jio's plans are more disruptive than expected and retain our cautious sector stance. The risk of both lower topline growth and margin pressures have increased for the incumbent," the note added.
Jio's commercial launch will be on September 5 and but it plans to offer unlimited data, voice, video and SMS until December as part of its 'welcome offer'. The newest telecom entrant is targeting 100 million customers in 'shortest possible time'.
"All bets are off on how industry financials shape up for the next couple of years," said Kotak Institutional Equities, scaling back its operating profit (Ebidta) forecasts for Airtel and Idea by up to 25%.
"Needless to say but say we must - we got this wrong; wrong in terms of the extent of disruption, both qualitative and quantitative, that Jio's announced tariff plans can potentially cause," it added.
Most analysts don't have much coverage on the other two listed telecom stocks -Reliance Communications and Tata Tele (Maharashtra)-but they too are likely to feel the heat of Jio's launch. Both stocks are down eight% and four% respectively in previous two sessions.
Among the listed players, Airtel is better placed in the new data-oriented telecom landscape, said CLSA. The brokerage too has cut its earnings forecasts for Airtel and Idea.
"With fresh risks from Jio's planned tariffs and free offers until December 2016, we lower our FY17-18 Ebitda estimates by 3-5% for Bharti Airtel and 2-4% for Idea Cellular and earnings estimates by 9-16% for Bharti Airtel and 13-19% for Idea Cellular," it said in a note.
