Bharti Airtel is expected to outperform its rivals in terms of revenue market share in the coming quarters due to a combination of tariff hikes and SIM consolidation. The company’s mobile revenues grew at a robust rate of 6% in the December quarter. This was significantly higher than the 3.3% growth recorded by its rivals, Reliance Jio and Vodafone Idea.
On Wednesday, the share price of Bharti Airtel closed at Rs. 724.05 on the NSE and at Rs. 723.80 on the BSE. In the trading session, Bharti’s share ended the day in slightly positive territory after staging a sharp recovery from the lows.
How does ARPU help Bharti Airtel?
The telecom companies have begun the journey of tariff hikes ever since Jio’s market penetration had taken India’s telecom pricing to the world’s lowest. Bharti Airtel’s continued improvement in its revenue market share can be attributed to the various hikes it has implemented since 2019.
With all the telcos planning to increase its average revenue per user (ARPU) in 2022, Airtel’s managing director, Gopal Vittal, said that the company would not hesitate to implement more hikes. The company plans to push the ARPU to Rs. 200 mark.
For the third quarter of the current financial year, the company reported revenue of Rs. 16,100 cr which is 5.9% higher than the same quarter of the previous financial year. This indicates that its market share continues to increase. Airtel’s performance is likely to go on at a similar pace due to the benefits it gets from sim consolidation.
The company’s superior execution is evidenced by its robust growth in Ebitda margins over the last couple of quarters. It has been estimated that the company’s Ebitda CAGR will reach 20% in the next couple of years. It is mainly due to the improving 4G mix and the company’s robust execution.
SIM Consolidation and Revenue Market Share
SIM consolidation is a common phenomenon that occurs when consumers make fresh choices due to the steep price hikes offered by their rivals. Following the price hikes implemented by the big telcos in November 2021, Bharti Airtel lost about 0.6 million customers in the December quarter. On the other hand, Jio lost 8.5 million whereas Vi lost 5.8 million customers.
Bharti Airtel has achieved a new high in terms of revenue recognition as revenue market share (RMS) is almost at 37%. While the company’s RMS is still lower than that of rival Jio’s 40.2%, it is better than Vi’s 18.6%.
Comparison with Peers
With the launch of the 4G-capable JioPhone Next, many analysts believe that the company will offer a cheaper variant of its popular smartphones. They believe that this will help push the competition between the country’s top two telcos.
Industry experts also believe that the companies organic deleveraging is on track and that it would benefit from the lower finance costs and the recent tariff hikes.
Analysts have maintained a positive outlook on Bharti Airtel and noted that the company’s FCF generation will improve due to the fund infusion by Google. With Google’s fund infusion and the company’s robust operating cash flow, it is estimated that Bharati will see a healthy deleveraging of around Rs. 80 billion to Rs. 100 billion.
In a bid to expand its operations in India, Google has announced that it will invest $1 billion in Bharti Airtel. The company will also invest $300 million in the next five years to develop 5G-related products and services.
Net profit at Bharti Airtel fell 27% sequentially in the December quarter due to higher finance costs and a fall in data usage. However, the company saw a boost in ARPU due to the hike in tariffs.
What is SIM consolidation?
When the telecom service subscribers make a preferred choice between the two telcos and make a switch, that is called SIM consolidation. This usually happens when a person has subscribed to two services. This is an important juncture as one telco gains a customer whereas the other loses one.
How is ARPU calculated?
ARPU is the average revenue per user of the telecom companies. It implies how much a telecom service provider is earning from each user. It is calculated by dividing the total earning of telco by the number of active subscribers.
What is RMS?
RMS stands for revenue market share. The market share is a measure of how much of a given market segment a company controls. Knowing the share of your company’s sales that goes to your competitors is very useful.
Disclaimer: This blog is exclusively for educational purposes and does not provide any advice/tips on investment or recommend buying and selling any stock.