Bharti: Spectrum edge to improve market share

Idea, Vodafone have increased their spectrum holdings, as they are lagging Bharti in 3G/4G presence

While most incumbents plugged their spectrum gaps and augmented spectrum capacity to prepare for the upcoming data battle, Idea Cellular was the one of the most aggressive players, buying additional spectrum in 2,300 and 2,500 spectrum bands.

Analysts are surprised by the investment (by Idea, Vodafone) in the 2,500 MHz band as the ecosystem in terms of handsets has not yet developed. Idea is hoping for a rapid progress on the handset ecosystem – it has so far maintained it will not need additional spectrum. The management indicated that the Rs 12,798 crore investment in buying 349.2 MHz (64 per cent increase from current levels) gives it adequate capacity to take care of data demand going ahead.

With Vodafone, too, buying 365.2 MHz (38 per cent increase from existing holding), the two players have narrowed the gap between their holdings and Jio’s spectrum bank. The average spectrum holding per circle for Vodafone and Idea after the October 2016 auctions at 40-43 MHz is 14-20 per cent lower than Jio.

  However, in comparison to Bharti Airtel (average holding of 64 MHz), they lag behind. Bharti, according to Goldman Sachs analysts, holds 44 per cent more spectrum on average than Idea, Jio and Vodafone and 50 per cent more 3G/4G spectrum than Vodafone and Idea. Barring two circles, Idea now has 4G in 20 circles while Vodafone has 4G presence in 17 circles. While Jio is a pure play on 4G technology in all the 22 circles, Bharti in addition to having pan-India 4G presence, has increased its 3G presence across all circles after the auction.

For the listed players, Bharti and Idea, which have a net debt of Rs 83,500 crore and Rs 37,600 crore, the additional spectrum investments will mean higher leverage. However, analysts at CLSA say that Bharti’s leverage will increase marginally by 40 basis points to 2.9 times net debt to earnings before interest, taxes, depreciation and amortisation. For Idea, this metric would rise to four times. The management, however, indicated that FY16 capex of Rs 7,000 crore and FY17 capex of Rs 8,000 crore is enough to meet core rollout requirements and peak capex will be behind the company by FY18.

Given the cashflow, the company is confident of taking care of its debt obligations. The firm is looking at an option of monetising its tower assets if the need arises.

Given the spectrum edge Bharti Airtel has over competition, most analysts believe it will increase its market share going ahead. It is the spectrum edge that helped the company gain share over the past year (largely metro and A circles) by 180 basis points (bps) to 33 per cent while its closest peer Vodafone lost 10 bps share to 25 per cent, say analysts at CLSA. Most analysts have a ‘buy’ on Bharti while they are neutral on Idea.