Battle of giants: Can Airtel widen its lead over Jio in FY22? Trendlyne

Bharti Airtel and Reliance Industries’ Reliance Jio Infocomm are elbowing Vodafone Idea (Vi) out of the telecom game. This is on the back of the two leading telcos acquiring 2.6 crore urban subscribers and 3.3 rural subscribers in FY21. Vi’s urban subscribers fell by 1.8 crore and rural subscribers by 1.7 crore during the year.

Vi hasn’t made a profit in two years. Its average revenue per user (ARPU), a key metric to track telecom companies’ revenue generation, was 22% below Airtel and Jio in Q4FY21. It is struggling to raise funds to pay off debt and adjusted gross revenue dues worth Rs 1.8 lakh crore. This will mean that FY22 will be a two-horse race between Sunil Mittal’s Airtel and Mukesh Ambani’s Jio to dominate the Indian telecom space. Who will come out on top?

According to data from the Telecom Regulatory Authority of India (TRAI), Jio added 3.5 crore subscribers, in FY21. This was higher than Airtel’s 2.4 crore subscriber additions. Vi lost 3.5 crore subscribers in the year. In every month of FY21, Reliance Jio added new subscribers. In Q1FY21, Airtel’s subscribers dropped by 1.1 crore (11% of total subscribers), but since then it added 3.6 crore subscribers between Q2-Q4.

Jio pipped Airtel in terms of subscriber additions because of its steady growth in rural areas. The Reliance Industries’ owned telecom company added 1.8 crore subscribers from rural areas, 18% more than Airtel’s rural subscriber growth in FY21.

Airtel’s data consumption per user remains the highest in the telecom sector at 16.7 gigabytes (GB) per user in Q4FY21. Jio’s data consumption was the least at 12.8 GB per user, and Vi’s was 13 GB per user in the quarter. A reason for this is Airtel’s low inactive subscriber base. Airtel’s inactive subscribers fell to 2.3% of total subscribers in March 2021 from 5% YoY.

Jio’s inactive subscribers remained high at 21.5% of subscribers in the year. Inactive subscribers are those who do not consume data or make calls. These subscribers do not contribute to a telecom company’s revenues. Active subscribers consume data and make calls, thereby contributing to the telecom company’s revenues.

This will come at a cost to Jio because its ARPU is lower than Airtel’s ARPU. In Q4FY21, Airtel’s ARPU was Rs 145, the highest in the telecom industry. Jio’s ARPU in the quarter was Rs 138.2. After an increase in ARPU in every quarter between Q4FY20-Q3FY21, all three telecom companies’ ARPU fell in the March 2021 quarter.

Between Q1FY21-Q3FY21 as ARPU rose, Airtel and Jio added 3.2 crore subscribers. However, in Q4FY21 as ARPU was lower, the duo added 2.8 crore subscribers. Analysts suggest an industry-wide ARPU hike will prove to be difficult due to a second wave reducing discretionary spending. It will be interesting to see if the telecom companies continue to decrease ARPU in FY22 in order to gain more subscribers.

That said, all eyes will be on Airtel and Jio as they are tussling for a dominant market share in the domestic telecom market. Vi’s market share has steadily fallen in FY21.

SpiceJet raises funds as cash dries up and expenses rise
The airline industry is once again struggling because of the second Covid-19 wave. Monthly domestic passenger air traffic was 45% below pre-Covid levels when the second wave began. This put India’s second-largest domestic passenger airline SpiceJet in a difficult position. The problem for SpiceJet is not just restrictions on air travel impacting demand, it is also its dire financial condition.

In Q4FY21, SpiceJet’s revenue was lower by 34% YoY at Rs 1,819 crore. But revenues rose by 11.5% sequentially. This was a strong gain considering the December quarter saw more people travelling due to the festive season. SpiceJet hasn’t made a profit since Q3FY20. In Q4FY21, net losses were lower by 70% YoY, but rose 4x sequentially to Rs 235 crore due to higher fuel expenses.

SpiceJet included aircraft rental concessions and compensation received from Boeing for the airline’s 13 grounded 737 Max airplanes into other income. This amount was Rs 141 crore in Q4FY21 constituting 17% of quarterly revenues, up from 13% of revenues in Q3FY21. It added to the company’s total revenue from operations and its bottom line.

With the rising price of crude oil (up by 60% in 2021), airline companies’ fuel expenses are up. This has been another drag on SpiceJet’s bottom line.

Fuel expenses will remain a drag on SpiceJet’s Q1FY22 numbers because crude oil prices are now at a two-year high. The Organization of Petroleum Exporting Countries (OPEC), a body of 13 oil producing countries, did not agree on a new plan to increase crude oil production, with UAE holding out on an agreement. Hence, crude oil prices will remain under pressure. This occurs at a time when passengers carried by SpiceJet had dropped to May 2020 levels due to the second wave and resulting lockdowns. Even as the country opens up, the airline industry expects passenger numbers to return to March 2021 levels (pre second Covid-19 wave) only in Q3FY22.

While the demand outlook doesn’t look favourable, SpiceJet is looking to strengthen its balance sheet for FY22. It paid back debt worth Rs 166 crore in FY21, and its cash on hand rose by 11% to Rs 33 crore in the year.

To strengthen its balance sheet, SpiceJet’s management announced a fundraise of Rs 2,500 crore in June 2021. It is the third passenger airline that announced a fundraise in Q1FY22. InterGlobe Aviation’s IndiGo Airlines is planning to raise Rs 3,000 crore. GoFirst (previously called GoAir) filed an application for its initial public offering (IPO) to raise Rs 3,600 through a fresh issue. However, SEBI has put the GoFirst IPO on hold for alleged irregularities by its promoter Bombay Dyeing and chairman Nusli Wadia.

SpiceJet’s board said it would raise the planned funds by selling equity to institutional investors. This is yet to be approved by its shareholders. Many consumer-facing companies are raising capital through equity to strengthen their balance sheet given uncertain demand conditions, and the possibility of a third wave. One of the reasons for this fundraising is to shore up cash reserves, said analysts. SpiceJet’s cash flows took a big hit due to the pandemic in FY21

Screener: Pharma, FMCG, and steel companies expand margins in Q4FY21
Rising input costs lowered operating margins of many companies in Q4FY21. However, there were some that managed their costs well, preventing a margin contraction. This screener lists Nifty 200 companies that saw their operating margins improve in Q4FY21 sequentially.

From the screener’s shortlist, the most common industry is pharmaceuticals with seven representatives – Dr. Reddy’s Laboratories, Cadila Healthcare, Gland Pharma, Laurus Labs, Syngene International, Ajanta Pharma, and Sanofi India. Pharmaceutical companies were back in focus in Q4FY21 and in Q1FY22, due to rising cases raising the demand for Covid-19 treatment drugs and vaccines.
CT Bureau