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Airtel bullish on 35% RMS, could gain big at Vodafone Idea's cost

In case no help comes on the AGR front, any hope that Voda Idea has will evaporate pretty quickly.

ET Bureau|
Updated: Dec 09, 2019, 12.53 PM IST
MUMBAI: Bharti Airtel is confident it can grab 35% revenue market share (RMS), up from 32% at present, said analysts, and would stand to make stronger gains at Vodafone Idea’s cost in case there is no relief from the government or court on adjusted gross revenue (AGR) dues.

Brokerage Goldman Sachs, which hosted Bharti Airtel chairman Sunil Mittal as part of its CIO tour, said the top executive expects average revenue per user (ARPU), a key operational parameter, to reach the Rs. 200 levels — a level it recorded before Reliance Jio Infocomm’s entry in 2016 — in the next few quarters. Airtel expects ARPU to reach close to even Rs. 300 over time. At end of July-September, the operator with 280 million subscribers clocked ARPU of Rs. 128.

“Return on capital in Indian telecom remains low and as per the company, ARPUs need to go up for it to improve. Bharti believes this is true even for competition,” Goldman Sachs said in a recent report. “It believes it can get to 35% or more RMS over time, from about 32% at present.”

But the bigger overhang is the AGR dues that telcos are liable to pay after the Supreme Court widened the definition of AGR to include non-core items. Airtel and Vodafone Idea, the worst hit by the order, have filed separate review petitions.

According to Goldman Sachs, Airtel, which has to pay over Rs. 35,500 crore of statutory dues, is hoping for some relief, including waivers on the amount or moratorium/deferment of payment.

9th dec graph

The telcos need to pay their dues by end of January. Analysts noted that in the case there is no relief, Vodafone Idea, staring at dues of over Rs. 53,000 crore, is worse off than Airtel.

“Liabilities are large, at $4.8 billion for Airtel and $5 billion for Vodafone Idea, and if the Supreme Court were to dismiss the review petition, causing the entire liabilities to devolve, it would be a negative development for Airtel but even more serious for Vodafone Idea, which may find it difficult to fund these liabilities before January 24, 2020,” said a Morgan Stanley report. “This could potentially lead to further market share consolidation in the industry, strengthening Airtel’s positioning.”

Goldman Sachs said that in the event of reallocation in the industry, Bharti Airtel believes it is well positioned to capture 50% or more of the incremental market share; per company, incremental revenue can come at a very high Ebitda margin. “The company sees low possibility of a new player entering Indian telecom,” the house added.

Vodafone Idea on Friday warned that without any other form of relief, the third-largest telco would have to shut shop. “ If we don’t get relief, it could be the end of the story for us. There is no company that could get that kind of money in three months,” said Vodafone Idea chairman Kumar Mangalam Birla, calling AGR the “big elephant” (in the room) that needed to be addressed urgently.

To improve their financials, all three telcos raised tariffs by 40% or more recently, with Vodafone Idea being the most aggressive. Despite that, the telco is worse off than its rivals, say analysts.

“Despite higher-than-expected tariff hikes, Vodafone Idea’s key challenge is market share loss,” said a CLSA report. “In fact, Vodafone Idea’s market share loss in the first half of FY20, at 5%, had accelerated (to 27%) and was against a 5% loss in FY19. Given Vodafone Idea’s lag in 4G networks versus peers, share loss will likely continue.”

Airtel expects the price hikes to push industry revenue over $50 billion, from $30 billion at present, but didn’t mention a timeline, Goldman Sachs said.

Airtel recently announced plans of raising up to $4 billion capital for AGR payments, but believes that its debt, “although elevated,” is under control. Mittal, at the Goldman Sachs event, also said the merger between tower majors Indus Towers and Bharti Infratel should be completed by end of December.

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