Why Bharti Airtel stock is falling?

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Reasons behind the recent fall in Bharti Airtel’s stock

Introduction

Currently, Indian Telecom sector is ruled by three players – Vodafone Idea , Bharti Airtel and Reliance Jio. While Vodafone Idea is facing major issues due to poor network conditions and mounting AGR dues, Bharti Airtel seems to be doing better in comparison. However, in the past month Bharti Airtel’s stock has corrected ~20%. In this blog let us discuss the reasons behind this significant fall in the stock.

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Reasons behind fall in stock price of Bharti Airtel

Indian Telecom Sector

  • Currently, Indian Telecom sector has moved past its price war phase , it is in a consolidated form with mainly three players and has a good future outlook. 
  • The major structural change bought by pandemic i.e “Work from Home” culture is a boon to the Indian Telecom sector. This has led to a good earnings visibility for this sector.
  • Also, due to the shutdown of theaters because of lock-down, there is an increasing traffic on OTT platforms. This is also one of the major levers for telecom growth in future.
  • Indian Telecom sector also has very high entry barriers mainly because of the consolidated market structure and capital intensive sector.
  • Short term headwinds for this sector include the payment of AGR dues. This is particularly a headwind for Bharti Airtel and Vodafone Idea, however Bharti Airtel seems to be quite well placed.
  • Introduction of Jio’s new post-paid plans, huge AGR dues and declining subscriber base might not augur well for Vodafone Idea. This might result in a duopoly in India with only Bharti Airtel and Reliance Jio.
  • With increasing pricing power, there will be price hikes taken by Jio to increase the profitability.
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Bharti Airtel Company Overview

  • Bharti Airtel is a leading telecom company operating in South Asia and Africa.
  • Airtel has its wide presence in 18 countries globally.  
  • One of the main reasons that Airtel is well placed to pay AGR dues is because of its wide presence. This has led to increased assets that the company can monetize to pay the dues. 
  • There is a significant uptick in the Average Revenue Per User (ARPU) from INR 129 to INR 157, registering a growth of ~21% from last year.
  • Company has healthy subscriber base of 28.7 crore. It has good reviews about its services, which also gives good  future outlook and earnings visibility.
  • In the past one year, there has been a significant data consumption jump, mainly led by work from home (WFH) culture and increasing preference for OTT apps.

Why Bharti Airtel Stock is falling?

  • Reliance Jio recently launched post paid plan which are at 6-20% discount to the Airtel and Vodafone Idea’s plans.
  • Currently Vodafone Idea has highest market share in post-paid market followed by Bharti Airtel. This move of Reliance Jio is mainly to increase the post-paid subscribers in its subscriber mix.
  • This has hampered the near term earnings visibility of Bharti Airtel as it is on the path of trend reversal.  
  • Also the company has not yet announced any similar post paid plans to counter Jio’s plans. This is mainly as Airtel is also focusing on improving its profitability (ARPU) and plans to double its ARPU from INR 157 to INR 300 in upcoming 2-3 years.
  • Also Jio has more content offerings in terms of tie-ups with the OTT platforms like Amazon prime, Netflix, etc as compared to Bharti Airtel and Vodafone Idea.
  • This might also force the two players (Airtel and Vodafone Idea) to increase the content offerings, thus increasing costs and taking toll on margins.
  • Also, ability of Vodafone Idea to raise funds from the market will indirectly impact Airtel’s performance in near term. This is because if Vodafone is able to raise the required funds easily, there will be increased competition between Airtel and Vodafone Idea.
  • Overall the company is currently dealing with the short term headwinds mentioned above, however its long term earnings visibility still remains intact.



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