Telecom sector outlook robust

• Telecom revenues robust: While most industries have been hit due to the country-wide lockdown imposed for 68 days in the April-June period, telecom operators including Bharti Airtel, Reliance Jio & Vodafone Idea have reported strong revenue and EBITDA growth in the quarter due to tariff growth and higher data usage, as consumers practise social distancing by Working From Home.
• Fitch expects further growth: Global rating agency Fitch expects Indian telcos to weather the coronavirus-led slowdown. 'According to Fitch’s estimates, the industry mobile segment's EBITDA will grow by 25 to 30 per cent year-on-year (FY20: 25 per cent) despite expectations for Indian GDP to contract by 5 per cent during this period.' Robust growth will be driven by sustained higher tariffs, feature-phone user migration to 4G and high monthly data usage of 12 to 16 GB per user, one of the highest globally.
• ARPU’s rise: Bharti's Airtel’s  ARPU (Average Revenue Per User) was the highest in the last 12 quarters, driven by a 45 per cent growth in 4G customers to 138 million, 40 per cent growth in monthly data usage per user to 16.6 GB and a 12 per cent increase in voice usage to 994 minutes. Reliance Jio’s Average Revenue Per User jumped 8% to ₹140.30 in the quarter. 'Fitch expects industry ARPU to grow by around 5 to 10% in FY21 as users upgrade gradually to higher-tariff 4G price plans.' According to Bharti Airtel, ARPU needs to grow to around ₹200 and eventually to ₹300 for a sustainable business model.

Outlook going forward

• When JIO entered the markets, it caused a huge price war among all players which led to many companies on the verge of bankruptcy. However, the Indian telecom sector has entered a phase of tariff consistency, which is likely to sustain. The market is expected to become a virtual duopoly, with competition being the lowest it has ever been. 
• Reliance Jio and Bharti Airtel are expected to maintain their market leader status. Bharti is expected to benefit the most from the revival in industry revenues due to a strong spectrum footprint, robust balance sheet and strong execution. The Supreme Court's verdict on payment terms for AGR dues will decide the fate of Vodafone Idea. They require a huge capital infusion to sustain which is highly unlikely.
• India’s telecom space has seen a lot of interest from foreign investors in recent times. Jio Platforms has raised about ₹1.52 lakh crore in the last two months from 12 PE investors, Google and Facebook, helping Reliance Industries to achieve net-zero debt status ahead of March 2021 schedule.
• Bharti Airtel has announced a deal with Amazon to offer could solutions to SMEs. This will help to fend off Reliance Jio and Microsoft in the battle for India’s cloud computing market. India’s public cloud market is expected to be worth $7bn by 2024, according to a report by International Data Corporation. 
• Both of these companies Bharti Airtel and Reliance Jio seem to have good execution capabilities to hold their ground in the upcoming days. 

Consensus recommendation: 

• Bharti Airtel: HOLD (Based on views of analysts from 26 external research institutions)
• Reliance Industries: HOLD (Based on views of analysts from 33 external research institutions)
• Vodafone Idea: SELL (Based on views of analysts from 14 external research institutions)

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