Brokerages comment as 5G auctions close

“5G is likely to be a duopoly of Jio and Bharti in the space of consumer and anticipate both Bharti and Jio to emerge as the dominant players in the consumer market with 5G bundles. However, with Jio likely to roll out its own 5G, Bharti Airtel would be under pressure to launch the same network in the near future. This raises the possibility of Bharti buying 700 MHz in the next auction (pricing likely to be similar to the current auction). Capex investment, however, should be greater – first, launch NSA followed by standalone 5G. We therefore view 5G-related investments as being likely to be high for several of years. ” BofA Securities

“The major impacts for Bharti Airtel from the 5G auction are margin accretion due to lower SUC charge and higher net debt due to a higher spectrum liabilities than we anticipated and a potential surplus of peers winning spectrum. For Bharti Airtel, the increase in spectrum liability compared to our initial estimate will increase our projection of net debt by $2.5 billion. However, a lower SUC cost could improve Indian mobility company EBITDA margin by about 350bps (~$330 million in absolute terms) that is a 7 to 7% EBITDA increase to the business (70 percent of SOTP).” Morgan Stanley

“Bharti is under control in capital allocation. Bharti has maintained its discipline in the allocation of spectrum capital with the purchase of 100MHz in India in C-band, and 800MHz in 26GHz. It also purchased spectrum in the 900/1,800/2,100MHz band to increase capacity of 4G, or bought spectrum in advance for the upcoming expiry. The total amount paid to Bharti will be around Rs 431 billion, and the initial payment is of Rs 22 billion.

The annual instalment following SUC savings (of Rs 22 billion) will be around Rs 18 billion that ICICI Securities believes will not burden the balance sheet too much. Net debt for the company will rise to $1,550 billion following the purchase of the spectrum, which will be reduced by around 150 billion waiting for a fund infusion from the rights issue and by Rs 50 billion from preferential issue to Google. The net debt is 1,350 billion.

We believe that Bharti will stay with the NSA-5G in the initial launch.” ICICI Securities

‘We also see risks of Vi’s 5G being viewed as more of a marketing gimmick, with investments largely done to prevent churn than create a better-quality network. We view the company as at maximum risk of losing its high-end subs over time if other telcos have better 5G networks.” BofA report

‘Vi spent Rs 188 bn in the recent spectrum auction to acquire 5G spectrum in its priority circles. However, with Vi’s current cash EBITDA run-rate (Rs 84 bn) insufficient to meaningfully increase capex, large upcoming debt repayments (Rs 70 bn) and also delays in external fund raise, we think Vi’s 5G rollouts would remain constrained in the near term.” Nomura

Impending 5G rollouts by peers could lead to accelerated market share losses for Vi, in its view.

“Vodafone Idea’s EBITDA, though rising, remains below what we believe the company would require to meet its repayment obligations – we estimate a Rs 40 bn of cash shortfall for Vodafone Idea by June 2023 (assuming all debt repayable). Subscriber base continues to decline, and with a weak FCF and balance sheet profile constraining Vodafone Idea’s ability to meaningfully increase capex, we foresee further risks to the company’s market share.” Goldman Sachs

“Vodafone Idea continues to lose subscribers: -3.4 mn in 1QFY23 and was flat QoQ. Subscriber churn increased 10bps QoQ to 3.5 per cent. Further, we do not expect VIL’s net subscriber loss trend to have improved in June 2022 on month-on-month basis. Based on April/May-22 TRAI numbers and 3.4mn net subscriber loss in 1QFY23, we estimate VIL to have lost 1.1 mn subscribers in June-22, which would be higher than 0.8 mn in May-22.” Credit Suisse

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