Competitive intensity likely to remain high; grounds for caution on Bharti and Idea
COAI FEB Data shows strong (12 m vs 4 m in Jan) m/m subs add for top-3 incumbents. Idea added the highest, 4.4m. A large part of the adds though are likely port-ins from small players which are at low ARPU. Jio addition will be key to watch in TRAI data once released. We expect competitive intensity to remain high as operators vie for market share. ARPU will likely remain soft till mid-FY20 and recovery will be gradual. We remain cautious on both Bharti and Idea. Strong sub addition for incumbents: Cellular Operators Association of India (COAI) data showed strong sub addition for the top-3 incumbents in Feb. They added c12 mn new subs in February, the highest in the past two years, vs c4 mn addition in Jan and Dec each. Idea had the most additions at 4.4 mn, followed by Bharti at 4.2 mn and Vodafone at 3.3 mn. Interestingly, Bharti lost 77k subs in Maharashtra and Voda lost 45k.
Likely port-ins from smaller players: TRAI data for Jan and Feb is not out so the industry and Jio trends are not clear. The increased additions, though, are likely port-ins from smaller players. Telenor lost c1 mn subs in Feb and 1.5 mn in Jan. Additionally, Tamil Nadu, Bihar and UP (E), the three strong circles for Aircel, saw the most sub additions (1 mn+ each) in Feb for incumbents.
At lower ARPU: The port-ins from the smaller players will likely be lower ARPU; Aircel’s ARPU in Q3FY18 was 20% below Idea and c40% below Bharti. March additions should be strong also. We expect the sub addition to remain strong in March also as the majority of the 85 mn subs (52 mn VLR subs) of Aircel port-out to other operators.
Jio addition the key to watch: Jio addition will be the key to watch going forward. It does not have any immediate port-in plans for subscribers at low ARPU. Consumers need to buy JioPhones for a lower ARPU. Jio’s Chairman, in a recent speech, stated that JioPhone is seeing c300-500k additions every day. This indicates a c10 mn+ monthly addition, equivalent to what the top-three incumbents achieved combined.
Remain cautious on competitive intensity: We expect competitive intensity to remain high as operators vie for market share. We expect ARPU to remain under pressure and cost pressures to also increase. We expect competition to extend to voice-only and post-paid subscribers. Recovery will also likely be gradual from mid-FY20. Stock valuations factor the best case and we remain cautious on Bharti
and Idea both.