Stay Put With Airtel Even As Jio Calling

Stay Put With Airtel Even As Jio Calling

BSE CODE : 532454 CMP : 314

India is currently the second largest telecommunication market in the world and also has the third highest number of internet users globally. India's telephone subscriber base expanded at a CAGR of 19.5 per cent to 1022.61 million over FY07-16.

Bharti Airtel is the market leader in the wi-fi domain with a 23.60 per cent share of total subscription nationally, followed by Vodafone which has a market share of 18.88 per cent. The fixed line segment is still dominated by national telecom service-provider, BSNL which has a market share of around 60.28 per cent. Indian mobile broadband demand has grown by 70 per cent on CAGR basis. India is the second largest internet user base with more than 400 million internet users, out of which more than 80 per cent of the users are using internet service on their mobile devices.

ABOUT

Bharti Airtel is among the top three mobile service providers globally with presence in 20 countries, including India, Sri Lanka, Bangladesh and 17 countries in the African continent. The company's diversified service range includes mobile, voice and data solutions, using 2G, 3G and 4G routes. Its service portfolio comprises an integrated suite of telecom solutions to its customers, besides providing long-distance connectivity in India, Africa and the rest of the world. The company also offers Digital TV and IPTV services in India. All these services are rendered under a unified brand 'Airtel', either directly or through subsidiary companies. The company also deploys and manages passive infrastructure pertaining to telecom operations through its subsidiary. It owns 42 per cent of Indus Towers Limited. Together, Bharti Infratel and Indus Towers are the largest passive infrastructure service providers in India.

JIO EFFECT

On September 5, Mukesh Ambani-promoted multi-diversified Reliance Industries (RIL) officially launched Reliance Jio and made all domestic voice calls and roaming free. The company also announced super-affordable handsets under the LYF brand starting Rs 2999. RIL has declared a ‘free welcome offer' for Jio customers from September 5 to December 31. After December 31, Jio will offer 10 tariff plans starting at Rs 19 a day for occasional users, Rs 149 a month for low data users and Rs 4,999 a month for heavy data users. Jio, since its rollout has accused incumbent players of not releasing sufficient interconnection points for its users. Interconnection is required to enable mobile users to make calls to customers of other telecom networks. To withstand the competition from Jio, Bharti Airtel has offered free unlimited voice calls at lower price points as a part of a two packs' package to refrain cream subscribers from shifting to Jio.

FRESH INVESTMENTS
Equity fund managers all over the globe are making fresh investments in the company. A total of 210 equity schemes have put around Rs 3884 crores into Bharti Airtel. Franklin India Prima Plus, ICICI Prudential Dynamic, and Franklin India Bluechip Fund are the top three funds that have invested in Bharti Airtel. The three fund houses as in August 2016 have put together a total amount Rs 975.57 crores in the company.

FINANCIALS
In the financial year ended March 2016, Bharti Airtel posted a consolidated net profit of Rs 4456.6 crores which has plunged by 16 per cent as compared to the financial year ended March 2015. Total revenue of the company stood at Rs 102047.1 crores which has increased by eight per cent. EBITDA for the period stood at Rs 29111.5 crores, and the number has increased by seven per cent as compared to the financial year ended March 2015.

In Q1FY17, the company posted a net profit of Rs 1229.4 crores which has been marginally decreased by one per cent as compared to Q1FY16. On the other hand, revenue of the company has grown by two per cent as compared to the previous quarter (i.e. Q1FY16).

Operating profit margin of the company has grown by 36.06 per cent. The company has a market capitalisation of Rs 1, 29,575.72 crores. Meanwhile, Bharti Airtel's CMP/BV stands at 2.96, which is better than its listed peers. ROE of the company in the last three years has been 6.95 per cent. The company has a P/E of 23.20, which is healthy as compared to the industry P/E of 20.86. The company, as on financial year ended March 2016, had a dividend payout ratio of 7.20 per cent, a reduction by four per cent as compared to the financial year ended March 2016.

CONCLUSION

In 2015, Airtel launched its 4G services in 296 Indian cities and was the first mobile operator in the country to launch 4G services. In terms of the subscriber base, Bharti Airtel is ranked third globally. Affordable smart phones will influence the revenue of the company in a positive way. With increasing sales of 3G, 4G enabled smart phones, data usage is expected to grow by 12 times by the end of FY2020.

Though the launch of Reliance Jio is big a threat to Bharti Airtel, experts suggest people should wait and watch for some more time to see its effects. Also there are several conditions attached to Jio connections and subscribers have already started reading between the lines and finding a mix of magic and non-realistic promises made by Jio in certain cases. Since its launch, Jio has been facing interconnection issues and this is discouraging users to shift to Jio. On the other hand, Bharti Airtel's global revenue is strong and Jio may fail to dampen the global revenue of the company. For instance, the capex productivity of the company in the financial year ended March 2016 stood at Rs 70.04 per cent, which is quite healthy than its peers. Therefore, we suggest our reader-investors to HOLD in the stock.

Jimmet Modi CEO,SAMCO Seurities

Launch of Reliance Jio had a dismissive effect on the telecom players - is this effect temporary in nature or does it have a wider repercussion?

The strategy of penetration pricing is the correct approach by Jio, at the same time dismissing the Jio's pricing strategy is also appropriate approach adopted by the existing players. However, the biggest relief to the existing operators is the fact that voice calls are effectively not free but chargeable through data consumptions in Jio's scheme of things. The focus now will shift to ARPU instead of absolute tariff which may be low or negligible. This shift in the outlook of the entire industry towards ARPU will help all telecom players and in particular help existing players to survive, thrive and grow.

On the wake intensified competition and threats, how Airtel should manage its business well within India and also overseas destinations?

Airtel is well managed company, however it will have to keep an eye on Jio's new additions and tariff structure to be announced post the free period i.e. till December which will then require them to match the pricing plans of Jio. Till that time there is nothing much they have to do other than increasing operational efficiencies. The Overseas business is a de risking strategy which has played well except for few countries in which they have already exited or are in the process of doing so. Overall it's a smart move from shareholders' point of view.

Do you see in next one year Airtel adding value in the kitty of the retail investors?

At best Airtel will not destroy value from the current levels, though it may not create much value till Jio announces full-fledged plans by January 2017. However, in the long term the company will survive and create value for the shareholders but that will require real patience on their part.

What will be your call on Airtel stock at this scenario - a buy, hold or simply sell? 

Hold and buy in a staggered manner. Today there is tremendous pessimism in the sector. These are ideal times for contrarian investors to bet on the sector as good times are bound to come in terms of return of pricing power as no businesses are for charity. All telecom operators in India belong to elite business houses, they all want to make money in the long term. The sector will pay off handsomely in the long term.