You are here: Home » Markets ยป Features
Business Standard

Reliance Jio impact: Should you sell Bharti Airtel, RCom, Idea Cellular?

These three telecom companies collectively lost over Rs 13,000 crore in market-cap on Thursday

Puneet Wadhwa  |  New Delhi 

Reliance Jio's launch

After eroding around Rs 13,000 crore in market capitalisation (m-cap) on Thursday after Mukesh Ambani, chairman of Reliance Industries (RIL) announced the launch of Reliance Jio from September 05 with an aggressive pricing structure, telecom stocks - Bharti Airtel, Idea Cellular and Reliance Communications - trade mixed on the National Stock Exchange (NSE) on Friday.

Click here to track telecom stocks

While Bharti Airtel was trading marginally higher at Rs 312 levels, up 0.4% in early morning deals, Idea Cellular and Reliance Communications (RCom) slipped around 2.1% and 1.5%, respectively. By comparison, the Nifty 50 index was trading 0.2% higher at 8,788 levels.

On Thursday, Bharti Airtel, the largest loser in terms of m-cap, lost Rs 8,455 crore m-cap at Rs 124,199 crore, the BSE data show. Idea Cellular lost Rs 3,528 crore at Rs 30,140 crore, and RCom eroded Rs 1,182 crore at Rs 12,333 crore.

Also Read: Jio launches mother of all telecom battles

So what should you do with telecom stocks? Here is a quick compilation of what the leading brokerages across the country suggest.


While Jio’s plans are competitive, in the near term, we see their acceptance constrained by limited availability of 4G handsets and steep premium to current 3G subscriber ARPUs. With fresh risks, we lower our FY17-18 Ebitda and earnings estimates for Bharti Airtel and Idea Cellular by 2-19%. However, key for Jio will be subscriber retention beyond free offers. In the new landscape, data capacity play Bharti Airtel and Reliance Jio are better placed given the lead in spectrum and network. Retain Buy on Bharti Airtel (target price Rs 398 from Rs 440) and Sell on Idea Cellular (target price Rs 79 from Rs 94).


RJio’s announced tariff plans came in as a negative surprise, especially the Rs 149 plan with unlimited voice. Unlimited voice, no additional charges for roaming, no blackout days, however, is appealing. Most importantly, Jio’s plans are a fundamental paradigm shift on how wireless services are priced. All bets are off on how industry financials shape up for the next couple of years. That said, we cut our FY2017-19E EBITDA estimates for Bharti and Idea by 7-25 per cent and cut our target prices to Rs 365 (from Rs 415) and Rs 105 (from Rs 155), respectively. BUY rating stays on both.


While incumbents are yet to respond, we do envisage either a price cut or some innovative bundled offering to counter RJio. We maintain our neutral stance on the sector, as the next couple of quarters are likely to put pricing pressure on incumbents. Furthermore, the spectrum auction would put an additional dent on their balance sheets. We have revised our estimates for Airtel and Idea factoring in the imminent price cuts. The impact on Idea is seen to be more pronounced as its entire revenues come in from the Indian mobility segment unlike Airtel that has inflows from other geographies and businesses. We now rate both Airtel and Idea as 'hold' with a target price of Rs 315 and Rs 80, respectively.


If Reliance Jio (RJio) garners Rs 200-250 average revenue per user (ARPU) while switching offerings from voice to data, incumbents’ ARPU base could be protected given their current ARPU base of Rs sub-200. Operators with marginal sub-10% market share, as well as Idea and Vodafone with weak data offering could get impacted (in that order). We think Bharti should be able to play the shift given its strong data capacity. Thus, voice ARPU may come down, but it could be offset by data ARPU.

With the upcoming free offering by RJio, both pricing and volumes of all telecom operators could be impacted as subscribers would shift toward free offering. Near-term earnings risk may weigh on both Bharti and Idea’s stock price, but over the long-term we remain positive on Bharti given its network preparedness which should provide competitive edge in a high-growing data market. On Idea, we remain negative owing to its weak network investment. We will see telcos’ reaction and revise our numbers with a detailed note to factor in potential pricing risk.


We do not expect incumbents to match RJIO’s unlimited voice offering, but exploit large gaps in price points to target specific users. With only two packages priced under Rs 500, which are likely to accommodate maximum number of users, we expect incumbents to offer multiple packages in this band to target different set of users to minimise churn. However, we expect users to perceive more value in Reliance Jio (RJIO) due to unlimited offerings and free usage till December 2016, leading to strong demand for its services.

Also Read: Why Jio may not bring down your mobile bill

With around 70% of industry’s revenue contributed by voice, RJIO’s unlimited voice offer will hit the incumbents. Despite the 6-11% drop in share prices of Bharti and Idea today, we would wait for abatement in competitive intensity before turning positive on the sector. Bharti and Idea are trading at 5.3x and 5.1x FY18E EV/EBITDA. We maintain 'hold' rating with target prices of Rs 360 and Rs 110, respectively.


We believe RJio’s launch will put pressure on voice tariffs for incumbents, who would now be prodded to roll out more bundled plans. While we are already below consensus, we cut our margin estimates for Idea Cellular and Bharti Airtel further (around 150bps or 5% EBITDA cut) to factor in higher network costs, churn rates and marketing growth.

This leads us to a new March 2017 target price of Rs 95 for Idea Cellular (Rs 104 earlier) and Rs 325 for Bharti Airtel (Rs 335 earlier). We believe EBITDA growth for incumbents will remain muted and elevated earnings risks would keep valuations under pressure. Stay cautious.


The entire telecom space, we feel, is likely to underperform much longer duration as their operating margins would continue to contract in the short-to-medium term. It could also possibly trigger consolidation among the existing mobile telecom players, although it is an oligopolistic (few players dominating the market). At least one player could join the consolidation in this space.

Also Read: Jio may impact profitability of existing operators: Analysts

Post RIL AGM, Bharti Infratel stock price fell about 4% from its intra-day peak. We feel the fear is unwarranted. The aggressive launch of 3G and 4G services, and also pressure on the existing players to improve the transparency will lead to increase the demand for telecom towers. Ultimately Bharti Infratel would be a major beneficiary of expanding scope of mobile telecom services.


During Q1FY2017, telecom companies were able to deliver double digit top-line growth although their performance faltered on the bottom-line front. Gauging increased competition with Reliance Jio’s advent, we prefer to be cautious on the sector.


We maintain our thesis that structural risks in the sector would continue in medium term i.e. 1) risk to voice revenues, 2) steep correction in data realizations, 3) continued capex and 4) rise in subscriber churn and subsequent increase in costs.

Also Read: Low price points push back Jio break-even

Given that Jio offerings are restricted to 4G handset subscribers, impact on existing telcos will be gradual while it would be interesting to see how they react. We cut our revenue assumptions for Bharti and Idea. This has resulted to earnings before interest, taxes, depreciation and amortisation (EBITDA) cut of 6%/12% for FY18E. Stocks to remain under pressure. We maintain REDUCE on Bharti Airtel and Idea Cellular.

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Fri, September 02 2016. 09:50 IST