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Airtel, Jio will continue to gain market share at the cost of Vodafone

Bharti Airtel and Reliance Jio will continue to gain market share at the cost of Vodafone Idea’s “worsened” financial health that may deteriorate further in the wake of the AGR judgment, Axis Capital said in a note on Friday.

Axis Capital said it has trimmed its revenue estimates for wireless telcos. This is because muted subscriber additions as well as hit in 2G/3G conversions to 4G SIMs on account of the lockdown and a possible extension of certain curbs, could partially impact revenue growth that was expected in coming months from the tariff hike in December 2019.

“We cut FY21/22E (estimates) revenue of wireless providers by 1-6 percent and EBITDA (Earnings before Interest, Taxes, Depreciation and Amortisation) margin by 20-100 bps (basis points,” Axis Capital said in the telecom sector report.

It said that while the tariff hikes undertaken by companies in December 2019 is likely to play out in nine months of calendar year 2020 as subscribers come for recharge, the floor pricing may be delayed due to the lockdown.

As per the Supreme Court judgment, incumbent telcos have to make full payment of Adjusted Gross Revenue (AGR) dues including interest, penalty and interest on penalty, it said noting that Bharti Airtel appeared better placed to make the payment, given the recent fund raise.

Introduction of floor pricing and cut in levies to ensure that market continues to have four players, can further benefit the industry including Airtel, Reliance Jio, it said.

“However, floor pricing may be delayed due to the lockdown. Also, due to economic stress from the lockdown, demand for relief by other industries may increase, which could impact Vodafone Idea’s prospects of getting relief from the government,” it said.

Axis Capital said Airtel and RJio will continue to gain market share at the cost of Vodafone Idea due to latter’s worsened financial health which may deteriorate further after the AGR judgment.

It noted that telcos had introduced new packs for customers for work from home, had engaged in ensuring service continuity and had rolled out relief offers to low income customers.

In its note on Friday, Axis Capital asserted that telcos’ subscriber addition will be hit, as the lockdown in wake of COVID-19 will sharply pull down subscriber acquisition, given that people mostly remained at home and shops were closed.

“COAI expects subscriber addition of less than 1 million in March 2020 versus average of 3 million per month. Subscriber addition to be hit for most of Q1FY21 due to 21-day lockdown and possibility of restrictions/ partial restrictions getting extended,” Axis Capital said.

Also, conversion from 2G/3G to 4G may also be hit as it requires new SIM, “which is difficult in a lockdown”, it said.

“These may partially impact revenue growth that was expected in 9MCY20 (nine months of calendar year 2020) from the tariff hike taken in December 2019. Accordingly, we have trimmed our revenue estimates for wireless telcos,” Axis Capital said.

Prime Minister Narendra Modi, on March 24, had announced a complete lockdown of the entire country for 21 days in an unprecedented move to try halt the spread of coronavirus, shortly after which the Centre said road, rail and air services will remain suspended during this period.

As on early Friday, the pandemic had claimed 56 lives in the country and number of COVID-19 cases had increased to 2,301.


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