Back in September 2016, Reliance Jio disrupted the Indian telecom market when it launched its mobile telephony and data services. Cut to 2023 and Jio is set to disrupt the market again with JioBharat the cheapest 4G feature phone priced at ₹999. Analysts at Jefferies Equity Research while analysing the impact of the launch, believe that over the next few years this will hit Bharti Airtel, its biggest competitor, with a potential 1-4% reduction in their India-mobile subscribers.
Jio expected to gain market share
JioBharat’s competitive pricing and decent device quality are expected to attract existing feature phone users. Those nearing the end of their device life could potentially save 26% on their overall mobile expenses (device + service) by switching to JioBharat.
However, users who are content with their current handsets may not switch. As a result, JioBharat is estimated to have an annual addressable market of approximately 60-65 million users. Based on this, the report anticipates Reliance Jio gaining around 55 million subscribers by March 2026.
Airtel’s subscriber estimates lowered
Bharti Airtel currently has around 130 million active 2G subscribers and over 100 million paying voice subscribers, giving it a substantial 40-50% share in the 250 million feature-phone market. Despite having a better network compared to other 2G operators, its dominant position in the feature-phone market may result in higher subscriber losses.
As a consequence, the report projects Bharti Airtel to experience voice subscriber churn of approximately 17 million by March 2026, leading to a potential 1-4% reduction in their India-mobile subscriber estimates for the fiscal years 2024 to 2026.
What else is affecting Bharti Airtel’s growth?
Jio’s focus on subscriber gains through network capacity additions and JioBharat launch may delay tariff hikes. Tariff hike assumptions are adjusted from 15% by end of calendar year 2923 to 20% in Q2 FY2025, resulting in a 3-5% cut to FY2024-2025 India Mobile average revenue per user (ARPU) estimates.
The recent 68% devaluation of Nigerian Naira vs USD affects Bharti Airtel’s Africa growth until Q1 FY2025, leading to a 17-21% reduction in Africa revenues and Ebitda. The market value of Airtel Africa has also corrected by 15% due to the Naira devaluation.
BUY rating maintained
Considering the delay in tariff hikes and the potential subscriber churn due to JioBharat, the analysts have revised their FY2024-2026 India revenue/ EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation) estimates for Bharti Airtel, reducing them by 2-5%. However, it is still anticipated that Bharti Airtel will achieve strong growth with 15-16% CAGR in India revenue and EBITDA over FY 2023-2026, along with improving return on capital employed (ROCE) and generating more free cash flow.
Furthermore, the impact of JioBharat may accelerate the move towards a duopoly in the market, leading us to raise the target enterprise value (EV)/EBITDA for India to 10x (in line with the 5-year average). So the analysts maintain a BUY rating with a revised price target of ₹1,020.
The BUY rating is based on a favourable risk-reward scenario at the current price levels. Key factors contributing to this recommendation are Bharti’s significant share gain in 4G subscribers, their intention to increase ARPU, and an optimistic tariff outlook driven by the government’s stake in the stock. These factors align to present a compelling case for investors to consider buying Bharti’s shares. BusinessInsider