Airtel may gain market share, accelerate industry consolidation

Given its robust balance sheet and superior network, Bharti Airtel has an opportunity to gain market share. Its recent capital raise may also lead to a plausible scenario of Vodafone-Idea’s exit, various analysts’ reports said on Tuesday.

Airtel on Sunday announced equity capital raising of up to ₹21,000 crore through a Rights Issue.

“In our view, Bharti’s staggered equity capital raise may also create adequate headroom to prepare for a scenario of plausible exit of Vodafone-Idea in the medium term. Bharti may be required to enhance its network capacity to accommodate any potential surge in subscribers, which may occur if the market moves towards a duopoly structure with two private players,” said Tarun Lakhotia and Hemang Khanna of Kotak Institutional Equities, in a report.

Increase ARPU
They added that Airtel may also look to raise entry-level prepaid tariffs to ₹99 in the near term, from ₹79 currently and ₹49 prior to recent changes. The company recently initiated steps, albeit in a limited way, to move towards its target average revenue per user (ARPU) of ₹200 by the end of this financial year (FY22).

Sunil Mittal, Chairman, Airtel, in an investor call on Monday emphasised the need to raise ARPUs to ₹200 per month by the end of FY22, and to ₹300 in the medium term.

Strong execution
According to the analysts, the company’s management adequately addressed key investor concerns during the call on Monday. Airtel clarified that capital raising is for debt reduction and capacity creation such as 5G, fibre back-haul and data centres; the promoter entity is not looking to sell shares in the near future; and investments in Indus Towers is not on the agenda for the fund-raise.

“At this juncture, we believe the odds of further industry consolidation are high. Given its strong balance sheet and superior network, Bharti has an opportunity to gain market share. So far, its (Airtel) execution has been strong, but Reliance Jioseems to be upping the ante with the launch of a low-cost handset in collaboration with Google. Even so, we expect Bharti to offer sufficient value proposition to customers to sustain market share,” said analysts at Edelweiss Securities.

Strategic investments
According to Kunal Vora of BNP Paribas, Airtel does not see a need to acquire additional spectrum other than 5G spectrum and thus its competitor’s assets (such as spectrum or equipment) might not hold much value even if the opportunity arises to acquire them.

“Exploring scenarios in light of Vodafone-Idea’s position, we believe Airtel is well positioned to grow revenue faster than the Indian telecom industry, which is poised for strong growth from FY21 to FY24,” he said.

According to Sanjesh Jain of ICICI Securities, Airtel believes digital investment have been slow but businessessuch as Wynk and Airtel IQ have shaped up well. The company’s restructuring plan will put all digital assets in the parent entity, and it has committed separate digital revenue disclosure in the future.

“Bharti does not want to divest stakes only in digital entities, and any strategic investment will have exposure to all businesses, which we believe could lead to value maximisation for shareholders,” Jain added. The Hindu BusinessLine