Reliance Jio Vs Bharti Airtel: How Investors Should Look At The Telecom Pack

Shares of Bharti Airtel Ltd. and Reliance Industries Ltd.—the parent of India's largest telecom operator by subscribers Reliance Jio Infocomm Ltd.—have surged nearly 30 percent in the last one month, outperforming the benchmarks that recovered some of the losses from their worst plunge in more than a decade.

The question now is whether the two companies are setting the stage for the long-term investor, according to Rajiv Sharma, head of research at SBICAP Securities. For him, both are long-term bets.

While RIL may trade “sideways” till the rights issue is completed, it scores over Bharti Airtel, he told BloombergQuint in an interview. The “deleveraging catalyst”, according to Sharma, is very strong in RIL, and Airtel has not demonstrated similar aspirations with the digital opportunities, he said, referring to Reliance Jio's tie-up with Facebook for online retail.

But, according to him, there is enough opportunity.

Bharti Airtel: Looking For Next Catalyst

According to SBICAPS, the telecom business is still a market share gain story. With Vodafone Idea Ltd. under pressure, the market share is up for grabs, albeit over a period of four-five years and not four-five months, Sharma said.

Market share gains, average revenue per user growth and better cash flows are all pillars of the telecom business—for Bharti Airtel in particular, he said.

While Bharti Airtel has focused more on the digital entertainment side, a tie-up similar to the Reliance-Facebook deal can be the next catalyst, he said.

If Google or a large fast-moving consumer goods company partners Bharti Airtel, there's a large community of local kirana traders that can be tapped, according to Sharma. RIL's retail platform JioMart has aggregated only 2-3 million of the total 15 million kirana shops in the country.

Also, global search giants like Google that may lose out on the digital ad pie after the Facebook-Reliance deal will be keen to collaborate with incumbent telecom operators and co-create a digital infrastructure to be equally relevant in the small business segments, he said.

SBICAPS has a 12-month target price of Rs 580 apiece for Bharti Airtel, implying an upside of about 10 percent.

RIL's ‘Different But Effective' Approach

Sharma said RIL's deals with Facebook Inc. and Silver Lake Partners pointed to a vision that these investors have about the business.

The kirana, payments, content and telecom offerings would be woven together to drive digital opportunities and valuations, according to Sharma. RIL, he said, was approaching e-commerce in a completely different but effective way via “kirana commerce”, with WhatsApp providing the company what it needs to succeed, he said.

The brokerage's target price for the stock is Rs 1,890 apiece, expecting an upside of nearly 30 percent.

WATCH | SBICAPS' Rajiv Sharma On India's Telecom Landscape