While Airtel stock slumped with Adani’s entry, preference for Airtel by brokerage companies continues

After the confirmation from Adani Group over its entry into the telecom sector, the Bharti Airtel stock slumped over 5% on Monday. The company was also the biggest loser among the Sensex constituents and ended the day down 5.03% at Rs 660.95 on the BSE.

In contrast, investors bought shares of Vodafone Idea, which ended up 3.44% at Rs 8.72. Shares of Reliance Industries also closed up 1.33% at Rs 2,423.20 after being marginally down during the day.

Analysts said that since Bharti is the biggest player in the enterprise segment, Adani’s entry in this space through private network solutions may offer direct competition to it. Around 17-20% of Bharti Airtel’s mobile revenues come from the enterprise segment.

If Adani Group takes only captive private network licence, it can use the spectrum only for its own captive use. But if it takes a unified licence, by paying Rs 15 crore, it can take up contracts for building private networks from other enterprises also, thus offering competition to telcos, who are looking at expanding their enterprise business with 5G.

Jio and Vodafone Idea have a very small percentage of revenue coming from the enterprise segment.

Shares of all Adani Group companies were in high demand on Monday. Adani Green Energy rallied 15.04%, followed by Adani Total Gas (6.80%), Adani Transmission (5.94%), Adani Power (4.99%), Adani Enterprises (3.42%) and Adani Ports and Special Economic Zone (1.82%).

Though Bharti shares ended in the red, the commentary from the brokerages were reasonably favourable. “Telecom stocks went up during FY13-15, despite Jio’s spectrum purchase/favourable regulatory changes, due to strong revenue growth. Stocks derated towards late 2015, a year before Jio’s launch. At present, the sector is again undergoing strong growth which is likely to support stock prices. Moreover, rise in competition has hit operators with stretched balance sheets more. Given that both Bharti and Reliance Jio have comfortable leverage, they should be able to manage this better,” Jefferies said in its report on Monday.

“Given no experience of Adani in the telco business, we don’t expect any material impact on Bharti, RIL for next 1-2 years but risks of medium-term competition is high. Success of Adani would be contingent on its execution or if it gets into JV with an enterprise expert. Maintain buy on RIL & neutral on Bharti,” BofA Securities said.

“While this event (Adani’s entry) may create some overhang on incumbents (including Jio), we do not expect it to be material until Adani Group shows concrete signs of entering the consumer mobility business. We, thus, continue to retain our preference for Airtel as a beneficiary of organic growth and market share gains (from Vodafone Idea),” Credit Suisse said.

As reported by FE, the Adani Group is likely to spend close to Rs 2,800 crore in buying spectrum in the auctions, which will commence from July 26. The amount is lesser than those expected from Reliance Jio, Bharti Airtel and Vodafone Idea.

Since the group is entering only the private network space, it is expected to buy only 26 GHz spectrum band, which is referred to as millimetre band. The reserve price for this spectrum is Rs 6.99 crore per MHz. A quantum of 400 MHz will be enough for private network, so the spend will be around Rs 2,796 crore.

In contrast, mobile operators would need a minimum of 800 MHz in this band so their spend will be double. Further, telcos need spectrum in combination of 3,300-3,670 MHz and 26 GHz. So, their total spend could go up to Rs 37,292 crore for the pan-India level.

Financial Express