Airtel seems to be sticking to its strengths while its shareholders want Jio-like fireworks

Airtel chairman Sunil Bharti MittalBCCL
  • Airtel’s share price has fallen by over 14% since the adjusted gross revenue (AGR) verdict was delivered on September 1.
  • Analysts indicated that the AGR verdict could benefit Airtel since it removes a key uncertainty around the company’s stock.
  • While the company is sticking to its strengths, we analyze the three factors that could be pulling the Airtel share price down.
  • Check out the latest news and updates on Business Insider.
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Investors had hoped for at least three growth triggers for Airtel. First, Vodafone Idea may die and a big chunk of the users may move to Airtel.

Second, there are still over 300 million 2G users and when they upgrade to 4G, Airtel will get a good portion of it.

Third, while Jio has taken a big chunk of the mobile telephony market, Airtel still has a stronger position in fixed line broadband, where Jio hasn’t raised the ante.

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Now, Airtel shareholders seem worried that the potential from the above three factors may not materialise in the way they had hoped. That would explain the 14% decline in the Airtel share price since September 1, whereas Vodafone Idea, its competitor, has increased by over 17% in the same period.

Airtel share priceBSE / Business Insider India / Flourish

A Jefferies Equity Research report dated September 1 said, “With the verdict removing a key uncertainty around the Airtel stock, the mobile market moving steadily towards a duopoly and another round of tariff hikes should benefit the stock,” indicating that the verdict could benefit Airtel.

BrokerageTarget price
Angel Broking₹672
Emkay Global₹684
Motilal Oswal₹700
Geojit BNP Paribas₹645
ICICI Securities₹700

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Source: Economic Times

However, contrary to analysts’ beliefs, the Airtel share price has been on a downward trend since the verdict was delivered. Since touching a high in July, Airtel’s share price has plunged by over 20%. Nearly 8% of this decline came in September alone.


Vodafone Idea is still in the fight
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Those backing Airtel had hoped that the Supreme Court verdict forcing telecom operators to cough up big money as unpaid duties may cause Vodafone Idea to fold.

However, it isn’t quite panning out that way. Vodafone Idea has rebranded itself, the Board has approved fundraising and according to a report, US tech giants Amazon and Verizon could invest $4 billion in Vodafone Idea.

The investment could give the Birla Group company the cash it needs to survive for the next two years, according to the Jefferies report. This, coupled with tariff hikes and a stable subscriber base, could allow the telco to survive.
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The threat from JioPhone

In the mobile sector, Airtel faces another challenge from Jio.

According to the latest report from the Telecom Regulatory Authority of India (TRAI), 55% of Airtel’s 318 million subscribers are still on 2G.
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This presents both an opportunity as well as a threat to Airtel.

The opportunity here is that Airtel could boost its average revenue per user (ARPU) significantly by just converting these 2G users to 4G. This would also negate the need for a tariff hike to some extent. “Airtel’s focus is to convert 2G subscribers to 4G,” Nitin Soni, Director, Fitch Ratings, told Business Insider.

But then, Jio is coming into the ring with a low-cost 4G smartphone. Jio has plans to build the next JioPhone in partnership with Google and Qualcomm. If Airtel doesn’t move fast, it could lose even its existing 2G subscribers like sand through fingers.
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Jio’s broadband challenge

Although Jio Fiber broadband service was launched last year, it decided against disrupting the broadband sector like it did the mobile one.

However, that has changed now. In August, Jio announced new broadband plans with lower prices and unlimited data, taking on its rival Airtel. Jio has built a vast network of fiber coverage and a substantially stronger balance sheet to expand coverage even further.

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However, this time around, Airtel responded immediately by converting all of its plans to offer unlimited data as well. Another tariff war is not what the shareholders want.

SEE ALSO:

Vodafone Idea may need up to ₹18,800 crore in next two years and tariff hikes to survive, says a new report

The AGR verdict could lead to a Reliance Jio and Airtel duopoly in the Indian telecom sector

Airtel wants to increase data prices to ₹100 per GB, founder Sunil Mittal asks subscribers to ‘prepare to pay a lot more’