Jefferies maintains Bharti Airtel as its top pick in the sector, driven by the company’s strong prospects in terms of Ebitda and free cash flow. The strategic focus on network investments positions Bharti Airtel favorably in navigating the evolving telecom industry landscape.
Despite this, Jefferies draws attention to the strategic direction taken by Bharti Airtel and Jio, emphasizing their unwavering commitment to network investments. This strategic focus has positioned them uniquely in contrast to Vodafone Idea, contributing to potential market share gains.
According to the report, Bharti Airtel maintained a robust capital expenditure of Rs 57 billion in the India mobile segment during the third quarter. In stark contrast, VIL experienced a significant decline, with 3Q cash capex plummeting to a multi-year low of Rs 3.3 billion.
The proactive approach of Bharti Airtel is exemplified by the addition of 30,000 base stations in 3Q. This stands in sharp contrast to VIL’s decrease of 1,600 base stations during the same period. Currently, Bharti Airtel boasts more than double the number of base stations compared to VIL’s network.
Jefferies predicts that the divergence in network investments between Bharti Airtel, Jio, and the financially challenged VIL will likely lead to sustained market share gains for Bharti and Jio in the competitive telecom landscape.
The report offers key takeaways, indicating that revenue growth for the sector remains in the high single digits, necessitating tariff hikes for improvement. Jefferies also anticipates a continued shift in market share towards Bharti Airtel and Jio due to the observed capex divergence.
Moreover, the report notes that unlimited 5G plans may limit Average Revenue Per User (Arpu) growth, with potential emphasis on 5G monetization expected to pick up in CY24. Additionally, any significant margin expansion from current levels, in the absence of a tariff hike, is deemed unlikely due to rising Sales and Marketing (S&M) costs.
The performance overview for 3QFY24 reveals steady aggregate revenue growth in the telecom sector, with Bharti Airtel gaining market share. While net additions slightly moderated due to lower gross adds, the overall subscriber base saw robust growth. However, Ebitda margin expansion was constrained by higher Sales and Marketing (S&M) costs.
In terms of revenue growth and market share dynamics, the report indicates stable revenue growth for the top three telecom operators at 2% QoQ/9% YoY. Bharti Airtel experienced an uptick in sequential revenue growth to 3% QoQ, attributed to a better-than-expected Average Revenue Per User (Arpu), while Reliance Jio’s revenue growth remained stable at 2.5% QoQ, and VIL faced a decline in revenues.
The subscriber trends highlight Bharti Airtel’s gain of an estimated 35 basis points (bps) in market share, contrasting with VIL’s decrease of 35 bps. Net subscriber additions in the third quarter, although slightly moderated, still marked the second-highest in the past 11 quarters.