Jefferies recommends ‘buy’ on Bharti Airtel; Lists three key takeaways for telecom services sector
Bharti Airtel and Reliance Jio saw increases in their market shares of 95 basis points (bps) and 70bps in the second quarter of FY24 compared to FY23, according to a report by global brokerage Jefferies on the telecom services industry. Reliance Jio’s rise in market share were mostly driven by B/C-Circles, whereas Bharti Airtel’s gains were more evenly distributed, ranging from 90 to 130 bps overall.
Significantly, Bharti Airtel outperformed Reliance Jio and Vodafone Idea in C circles by 90bps in market share, indicating that its rural expansion strategy is taking hold. In keeping with its dominance in markets focused on cities, Bharti Airtel preserved its market share lead in both Metros and A-Circles, the global brokerage said in its report.
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While both Bharti Airtel and Reliance Jio’s revenues increased by 10% YoY, the sector’s revenue growth slowed to 7% YoY in the second quarter of FY24, a 16-quarter low. A 95bps/70bps increase in market share was achieved by Bharti Airtel and Reliance Jio. Vodafone Idea saw a drop in revenue and a loss of market share in 19 out of 22 circles, resulting in an all-time low for their market share. As 5G becomes more widely used, market share gains for Bharti Airtel and Reliance Jio should accelerate.
“We expect sector revenues to grow at 13% CAGR to US$37bn over FY24-26 with market share gains for Bharti/Jio,” the brokerage said.
As per Jefferies, Vodafone Idea’s market share in the second quarter of FY24 was at an all-time low of 16.2%, down 105bps from the previous year’s FY23. Vodafone Idea’s market share has decreased across the board, falling between 40 and 70 basis points in the more urbanised Metros and A-Circles and between 80 and 150 basis points in the more ruralised B- and C-Circles.
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Three positive takeaways for sector
Jefferies outlined three significant takeaways. First, the sector revenue growth moderation persists and tariff hikes are necessary to improve; second, Vodafone Idea’s broad-based market share loss suggests that Reliance Jio/Bharti Airtel will continue to gain market share as 5G becomes more widely adopted and given Vodafone Idea’s incapacity to invest in networks. Thirdly, Bharti Airtel and Reliance Jio’s double-digit growth in the absence of tariff hikes across the industry is encouraging, and the sector’s equilibrium is indicated by the growth’s convergence, which is likely to maintain price discipline.
“We expect sector revenues to grow at 13% CAGR to US$37bn over FY24-26 with market share gains for Bharti/ Jio, and recommend BUY on Bharti Airtel,” the brokerage said.
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