Indian Telecom Sector May Turn Into Duopoly Sooner Than Expected: Jefferies

Vodafone Idea Ltd. may lose subscribers at an accelerated pace due to the launch of Jio Bharat, leading to a faster shift in the market share of the telecom sector, according to Jefferies Financial Group Inc.

In May, the sector's active subscriber base rose by 50 lakh, led by Reliance Jio Infocomm Ltd. (49 lakh) and Bharti Airtel Ltd. (24 lakh). Vi's active subscriber losses rose to six-month high of 18 lakh, according to data from the Telecom Regulatory Authority of India

The recent launch of Jio Bharat has increased competition as the company targets 25-crore low-cost 2G users from rivals Airtel and Vi.

Vi's subscriber losses may accelerate due to the Jio Bharat launch, which "will turn the market into an effective duopoly sooner than expected", Jefferies said in a note on Tuesday.

The limited recovery in Vi's 3G/4G subscriber base in May despite a sharp fall in April suggests a permanent loss of 4G subscribers. It could lead to an accelerated market-share shift and turn the market into an effective duopoly sooner than expected, according to the brokerage.

Here's What Brokerages Say About Telecom Sector

Jefferies

• Jio and Airtel led the sector's gain in active subscribers with 49 lakh and 24 lakh new subscribers respectively.

• Vi's subscriber losses of 18 lakh were at a six-month high.

• Airtel's strong 4G subscriber traction supports its average revenue per user.

• Vi's losses may escalate due to the launch of Jio Bharat.

• Subscriber additions were seen in all circles except metros, with B-Circles (48 lakh) and C-Circles (25 lakh) leading, while metros witnessed a decline of 28-lakh subscribers.

• Subscriber additions in 3G/4G picked up to 53 lakh in May after moderating to 40 lakh in the previous month.

• Vi's under-recovery of subscribers following a sharp fall in 3G/4G subscribers indicates that 5G rollouts by Airtel and Jio are driving market-share gains.

• Mobile-number-portability requests increased, driven by users porting out to experience 5G services, which may raise sales and marketing costs for companies.

• Jefferies raises concerns about Airtel's lower reported subscriber additions in investor presentations compared to TRAI data in the last eight quarters, affecting their estimate of 30 lakh net-subscriber additions for Q1.

• Maintains price target of Rs 1,020 based on sum-of-the-part valuation for Airtel. Assign a 10x EV/Ebitda multiple to the India mobile business and a 10x multiple to the non-mobile.

ICICI Securities

• Jio's active subscriber base increased by 49 lakh in May, surpassing the last six-month average of 27 lakh.

• Airtel's active subscriber base rose by 24 lakh, slightly exceeding the previous six months average of 20 lakh.

• Jio's active subscriber market share rose by 29 basis points month-on-month to 39.5%, while Airtel's share was up 6 bps to 35.7%. Vi's share fell by 27 bps to 19.7%.

• Industry-wide mobile-number porting reached 1.15 crore, a 4.7% increase over the previous month.

• In May, the total wired broadband subscriber base grew by 5.8 lakh to 3.45 crore. Aitel and Jio added 1.5 lakh and 2.7 lakh subscribers respectively while other operators added 1.8 lakh subscribers.

• Airtel is rated as a buy, while Vi is under review.

Morgan Stanley

• Wireless data subscriber additions in May reached 53 lakh, aligning with the trend line.

• Vi experienced accelerated subscriber losses in April and May, particularly in circles like Mumbai and Delhi.

• Total subscribers remained relatively stable at 114.3 crore, with minimal changes over the past seven months.

• Jio's net subscriber additions in May were widespread across rural and urban areas and circles. Airtel's additions were mainly concentrated in circle A/B, while Vi saw acceleration in market-share loss in metros during the month.

• Additions of wireline broadband data subscribers favored Jio, increasing its market share to 25.9% in May compared to 25.5% in April. Airtel's share improved to 18.6% from 18.4% in April.