The hidden trend that could boost telecommunications stocks in the years to come

The hidden trend that could boost telecommunications stocks in the years to come

In 2021-2022, the top three telecommunications operators accounted for 92.8% of the sector’s total revenues.

According to the latest data revealed by TRAI, India’s telecom regulator, total telecom revenue jumped 13% year-on-year to $26 billion in the fiscal year ending in 2022.

Compared to the year ended in 2019, the number increased by 52%.

This leap in telecom revenues is explained by the price increases undertaken by all telecom operators in November 2021.

Subsequently, their reported total revenue for the fiscal year ending in 2022 also showed a massive improvement.

Whereas Bharti Airtel reported a 22% year-on-year increase and Reliance Jio an 18% year-on-year jump. Vodafone Idea reported a decline in total revenue due to high churn.

Apart from that, the regulator has also reported some interesting numbers which spell out some interesting trends. These include:

Trend #1: Additional Market Share Change

In the fiscal year ending in 2022, the top three telecom operators accounted for 92.8% of total industry revenue, with Reliance Jio leading the pack.

While Reliance Jio’s market share increased by 1.6% to 39.5%, Bharti Airtel’s market share jumped by 2.5% to 35.1% in the fiscal year ending in 2022.

Vodafone Idea was the only one whose market share fell to 18.2%, down 2.4% from last year. And this is not a one-time event.

Vodafone Idea market share has fallen sharply since the financial year ended in 2018, from 38.5% at the time to 18.2% today.

Conversely, Reliance Jio’s market share grew from 10.8% in the fiscal year ending in 2018 to 39.5% today.

However, this is the first year since the launch of Jio that Bharti Airtel’s market share growth has exceeded that of Reliance Jio, a source of optimism for Bharti Airtel shareholders.

Therefore, this is also the first time that Bharti Airtel’s incremental revenue growth has exceeded that of Reliance Jio.

Trend #2: Disparity in the customer mix

Telecommunications customers are divided into four types of markets, commonly referred to as circles in the telecommunications industry. These are the metros, circles A, circles B and circles C.

But why is it important?

Not only is the growth profile of each circle diverse, but each player benefits from a different share level in each of these circles.

Consequently, the analysis of growth prospects and market shares of the players in these circles determines their fate.

Total revenue in Metro Circles has increased 38% over the past two years. Circle A 35%, Circle B 42%, Circle C 54% over the past two years.

At a staggering 76%, Circles A and B together control the largest share of total telecommunications revenue. While Reliance Jio is the market leader in both segments, Bharti Airtel is close behind in Circle A.

According to the latest data published by TRAI:

* Bharti Airtel and Vodafone Idea gain shares in metros

* Bharti Airtel and Reliance Jio both gained shares in Circles A and B,

* Reliance Jio has earned her share in Circle C.

With only three dominant players in the Indian telecom market, let’s find out who will benefit the most from these trends reported by the TRAI.

1. Bharti Airtel

While Bharti Airtel’s market share growth has surpassed that of Reliance Jio for the first time, its sustainability is questionable.

The company is second only to Reliance Jio, reporting a larger subscriber base and higher total revenue.

But there are still lingering concerns. Despite incessant data traffic of 19 GB per subscriber, it is still half the volume of Reliance Jio.

Moreover, new promotional offers from Reliance Jio may further hamper Bharti Airtel’s data revenue growth.

Financially, the company has a highly leveraged balance sheet. But while debt levels are high, the company has renewed its focus on balance sheet deleveraging.

And with the changing competitive landscape and stronger growth prospects, there is a good chance that they will pay off their debt sooner than expected. Bharti Airtel looks well positioned to grow rapidly in the near term.

Bharti Airtel ranks among the top three telecom operators in the world, covering more than two billion people.

With over 350 million subscribers in India, it provides mobile services to over 20 telecom circles. Apart from that, it is also one of the largest telecom operators in Africa with over 110 million subscribers in 15 countries.

The company’s activity remains solid. The current leverage ratio is 2.6x while the interest coverage ratio is 1.6x.

2. Vodafone idea

Vodafone Idea has been losing market share to Bharti Airtel and Reliance Jio for more than five years.

Unfortunately, there has been no change as recent data published by TRAI confirms this.

The company is experiencing operational and financial difficulties. Continuous rating downgrades by credible agencies have led to higher funding costs, further hampering profitability.

While the promoter group, Vodafone Group Plc and famed Aditya Birla Group pumped in Rs 4,500 crore, the company failed to raise funds from outside investors.

Vodafone Idea is India’s second largest telecom operator in terms of subscribers with over 250 million and third in terms of market share with 26%.

Considering that the company has lost market share, revenues and profits have dropped over the past 5 years.

3. Jio addiction

Reliance Jio is India’s telecommunications industry leader with over 400 million subscribers.

The unlisted player enjoys a widespread dominant presence in high-growth industries, bolstering its subscriber base since the fiscal year ended 2018.

However, for the first time in 2022, the leader reports a tiny drop in subscribers.

The level of pricing aggression to gain market share appears to have receded as Reliance Jio has increased its pricing.

While the new trend, reported by TRAI, appears to favor Bharti Airtel, we don’t know how sustainable it is.

To conclude…

India, the second largest telecommunications market in the world, with more than 1.14 billion subscribers, has always been plagued by fierce competition.

Constant price wars have led to a bumpy road to profitability for several years now.

While Bharti Airtel managed to survive the difficulties, Vodafone Idea was torn apart by the advancement of aggressive players like Reliance Jio.

Even today, while the risk of competition remains, it has diminished with the recent price increases successfully implemented by all players.

Disclaimer: This article is for information only. This is not a stock recommendation and should not be treated as such.

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