Airtel vs Reliance vs Vodafone-Idea: Which Telecom stock should you buy? Edelweiss explains
Due to the competition among the leading telecom service providers, the industry average revenue per user or ARPU plunged 38 percent. However, there might be light at the end of the tunnel.
Reliance Jio’s (RJIO) launch in 2017 led to one of the most brutal price wars in India's telecom sector. Due to the competition among the leading telecom service providers, the industry average revenue per user or ARPU plunged 38 percent, which led to total industry size shrinking to Rs 1.4 trillion (Rs 1.4 lakh crore) from Rs 1.8 trillion (Rs 1.8 lakh crore). However, finally there’s light at the end of the tunnel, as analysts perceive there is hope on the horizon, as mobile broadband service penetration is growing at a very fast pace.
Edelweiss in a report said that price hikes are imminent as RJIO approaches its 400 million subscribers' milestone, and telecom operators’ try to monetise their non-core assets. These prospects make it imperative for investors to repose confidence in the telecom industry’s long-term health.
The brokerage house predicts price recovery in the telecom sector from the second half of FY20, and industry ARPU going up to pre-RJIO level of Rs 156 by the end of FY22. The report suggests that in Q3FY19 the sector APRU will stand at Rs 98.
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"We expect operating leverage to kick in for Bharti Airtel and Vodafone-Idea boosting the otherwise subdued EBITDA margin. Among players, we prefer Bharti (BUY) and RJIO over Vodafone-Idea (HOLD) due to the latter’s high leverage, low network investments and integration challenges. We see further value enhancement in RJIO," the brokerage firm said.
Avinash Gorakshakar, Head research, Joindre Capital Services, told Zee Business Online, "In the short-run, there is no prospect for gain in this sector, as APRU is yet very low and they have to bear the cost of buying 5G spectrum in the near future. However, in the long-run, there may be gains. Currently, there is cut-throat competition in this space. In the long-run, there may be price recovery, as RJIO has already expanded its subscriber base."
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"However, Reliance Jio and Airtel are in a better position for price realisation. Vodafone is going to come up with rights issue shortly, which will also have an effect on share price," Gorakshakar said.
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