How is the Indian telecom sector looking to global brokerage Jefferies? Let’s decode!

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Indian Telecom Sector Jefferies Report

Indian Telecom Sector: An Overview

One of the most compelling stories of India in recent years has been the growth of the telecom sector. From having more than a dozen players almost a decade ago, the industry has now effectively become a three member club. Out of those three, two (Reliance Jio and Bharti Airtel) are dominating the Indian telecom landscape.

Meanwhile, with penetration of mobile and data increasing by the day, the sector is seeing increased investments by the day. Consequently, the consumers seem to benefit as they are getting cheaper, faster data with better connectivity issues.

Indian Telecom Sector: Jefferies Report Key Points

However, the sector is also facing a few headwinds which is hurting the growth of the companies. Some problems like high debt, reduced profitability, and high capex is plaguing the growth trajectory of the companies.

In such a scenario, global brokerage Jefferies has come out with a report to highlight the prevalent situation of the telecom sector and what are its future prospects. Let’s have a look at the observations:

Revenue growth to be hurt: One of the primary observations of the brokerage has been the lack of adequate tariff hike of the telecom companies. Without a substantial tariff hike, the firm believes that revenue growth for the sector will stagnate and the subsequent growth potential will be hurt.

Market share shift: The global brokerage observed that the market share shift towards the two big players i.e. Reliance and Airtel continue unabated. In fact, the brokerage observed that recently Airtel gained an additional market share of 0.2% compared to a loss of 0.25% market share by Vodafone Idea.

Notably, as of December end, Reliance Jio has a wireless subscribers’ market share of 37.14%, next up is Bharti Airtel at 32.16%. Lastly, Vodafone Idea’s market share stands at 21.11%.

Expanding margins: The brokerage positively observed that in the December 22 quarter the top three telecom companies in India witnessed an expansion of their operating margins. This was because of operating leverage and rising spectrum usage charges. However, the firm also pointed out that high sales, marketing, and interest costs could hurt the growth of the operating margins.

Net Subscriber Additions: Jefferies was majorly disappointed with the recent net subscriber additions for the telecom companies. While it was impressed by the 4.4 million net subscriber additions for Airtel, Jio and Vodafone’s net subscriber additions of 5.3 million and 6 million, respectively disappointed.

Capex Push: In terms of capex, the brokerage remained excited about Jio and Airtel investments especially on the 5G front. However, the brokerage remained skeptical of Vodafone Idea’s ability to compete against the big two due to its precarious cash position and high debt levels, which in turn acted as a hindrance to its capex push.

Indian telecom sector: December quarter  performance

Bharti Airtel35,804 (+20% YoY)1,588 (+91% YoY)193 (18.4% YoY)
Reliance Jio22,998 (+18.9% YoY)4,638 (+28.3% YoY)178.2 (17.5% YoY)
Vodafone Idea10,621 (+9% YoY)-7,990 (+4% YoY)135 (17.4% YoY)

    (all figures in crores, except ARPU)

Indian Telecom Sector: Analysts View

JM Financial: The renowned brokerage has a bullish view on the Indian telecom industry. However, the firm remains of the view that the sector requires an ARPU of Rs 256-285 to fund the massive upcoming capex required for 5G rollout and other network enhancements.

IIFL Securities: The domestic brokerage remains of the opinion that a tariff hike is imperative in the near future to fund the massive capex required for 5G or else the sector will witness a slowdown.

Novuma Wealth Management: The domestic brokerage remarked that the eventual roll out of 5G and the ensuing tariff hikes will result in the growth of operating profits for the sector.

This is not investment advice. Investments in the securities market are subject to market risk, read all the related documents carefully before investing. Past performance is not indicative of future returns.

  • Which global brokerage came out with a report on the Indian telecom sector?

  • Which are the three major telecom companies in India?

  • What are other brokerages' views of the Indian telecom sector?