India’s mobile industry officially shrinks by a third post-Jio

Telecom industry’s woes continue 



The Telecom Regulatory Authority of India’s (Trai’s) performance indicator report for the March 2018 quarter shows that the industry’s woes continue. According to Kotak Institutional Equities, consumer-level wireless spends (including service tax)  have fallen by 33% to ₹ 29,800 crore in the March quarter. That’s down from a peak of ₹ 44,700 crore in the June 2016 quarter, the last ex-Reliance Jio quarter. As such, the reduction in wireless bills works out to ₹ 59,600 crore on an annualized basis. On an average, based on this data, consumer spends have fallen by 33% since Reliance Jio’s launch.

Why is this important

  • Jio with its aggressive pricing plans has disrupted the market and led to lower ARPU’s (average revenue per user) for the industry as a whole. Average ARPU’s from access services have declined from 89.34 in Q4FY17 to about 71.62 in Q4FY18, reflecting a substantial downfall.
  • With falling revenues, rising costs and debt levels, telcos are struggling to generate good returns for its investors.
  • Industry is now undergoing consolidation as smaller players are increasingly finding it difficult to survive the current landscape.
Telecom sector adjusted revenues show a declining trend; Source: The Indian Telecom Services Performance Indicators Report, TRAI

Stocks to be impacted

With industry reeling through multiple headwinds and competitive intensity at its maximum, we expect pricing pressure to be maintained as the fight for market share gains continue. Subdued returns are to be expected in the near term, however, with government working on new policy which aims at introducing new measures and reducing spectrum charges, we expect the situation could improve in the medium term.

Airtel (CMP: 366, Mcap: 1,46,085 crores, EV/EBITDA FY20E 7.7x)

Idea (CMP: 56, Mcap: 24,415.5 crores, EV/EBITDA FY20E 9.8x)

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