Multiple analysts expect the telecom industry to outperform in the upcoming quarters due to “increased demand for data” with the analysts placing their bets on Bharti Airtel to deliver long term returns in the sector. Airtel, the second-largest wireless operator in India has been in the spotlight in the recent months with the operator consistently registering more active users on its network as compared to its rivals. The Telecom Regulatory Authority of India (Trai) on Tuesday released the Telecom Subscription Data for the period ended August 31, 2020, with the data highlighting that Airtel added over 2.8 million users. Reliance Jio, the largest wireless operator in India is said to have added over 1.8 million users in August.
Analysts Expect Bharti Airtel ARPU to Hit Rs 208
Crucially, the Telecom Subscription Data for the period ended August 31, 2020, also highlights that Bharti Airtel has 96.85% active users on its network. The key rivals of Airtel including Vodafone Idea and Jio registered 88.18% and 78.86% active users respectively.
Axis Securities on Tuesday said in a report that Airtel registered “solid numbers” in its second-quarter results of the current financial year “beating consensus estimates both on financial and operating parameters.” The firm highlighted that Airtel recorded 3% quarter-on-quarter (QoQ) growth in its average revenue per user (ARPU) to Rs 162 “which was significantly higher than expectations.”
“Jio's ARPU improvement to Rs 145 from 140 was higher than Bharti on account of price hikes but Bharti still has the best quality subscriber,” Axis Securities said in its report.
Further, Axis Securities also highlighted that the complete impact of the tariff hikes unveiled by the telecom operators in December, 2019, was already seen in the fourth quarter of the previous financial year.
“The ARPU improvement in Q2FY21 was a function of customers upgrading [to 4G] and better postpaid sales,” Axis Securities said in its report. “However, considering the industry structure further tariff hikes cannot be ruled out in the forthcoming quarters which will lead to consistent EBIDTA improvement.”
Axis Securities said that it forecasts 13% compound annual growth rate (CAGR) for Bharti Airtel in terms of its revenues between FY20 to FY23.
“Our forecast is based on significant ARPU improvement from current Rs 162/subs/month (Q2FY20) to Rs 208/subs/month by end of Q4FY23,” Axis Securities said in its report.
The firm also said that the Airtel’s value “could increase by a further” Rs 40 per share if Vodafone Idea shuts down its operations in the country.
Telecom Industry Expected to Outperform in the Upcoming Quarters
Meanwhile, IDBI Capital in its report on Tuesday said that the Indian telecom market has only “two strong players.” The firm in its report named Reliance Jio and Bharti Airtel as the “strong players” in the industry.
“Bharti has a strong market share in the premium subscribers (postpaid/high pre-paid) which places it well to take advantage of increasing data consumption and expected increase in ARPU,” IDBI Capital said in its report.
The firm said that the regulatory headwinds such as the adjusted gross revenue (AGR) case are “largely behind” and that Airtel is “well placed to make the balance payment over the stipulated time period.”
Crucially, IDBI Capital also highlighted that the second-largest wireless operator in India never had issues in raising the required capital.
“While 5G rollout would need CAPEX, BHARTI has never faced issues in raising capital,” IDBI Capital said in its report. “Further, it has ~54% stake in Bharti Infratel which can also be used to raise capital.”
Similarly, Motilal Oswal in its on Tuesday said that Airtel’s “execution has been top-notch in the last few quarters, evident” from its financial results, subscriber additions and ARPU improvements. The firm said that its is “positive” on multiple sectors including telecom to deliver in the next 12 month period.
Identical sentiments on the telecommunications industry were also shared by other firms such as Axis securities and Angel Broking.
“Telecom is also expected to continue doing well given increased demand for data and gradual increase in ARPUs due to consolidation in the industry,” Angel Broking said in a report on Wednesday.