RJio: The real super star
In
terms of financial performance, Jio reported revenue from operations of
Rs6879 crores (up 11.9 percent qoq) and added 21.5 million subscribers
over the last quarter brining the subscriber base to 160.1 million at
the end of December 2017. This gets translated into average revenue per
user (ARPU) of Rs154 per month (down 1.5 percent qoq), much better than
its peers.
In terms of operating margin, Jio reported a
significant expansion of 1472.5bps in its EBITDA margin, which came at
38.2 percent. The expansion was primarily due to reduction in access
charges (net), which fell from 34.8 percent of revenues from operations
to 15.7 percent in this quarter (Telecom Regulatory Authority of India
(TRAI) cut interconnection usage charge (IUC) by 57 percent effective 1
October 2017). Additionally, the management attributes this performance
to use of efficient 4G technology and significant addition of the paying
customers for the quarter.
We believe that Jio would continue its
mojo, going forward, on the back of right business strategy, latest 4G
technology and huge unmet potential available in India.
Bharti Airtel – continue to be the eye catcher
With
consolidation in the industry, improvement in the performance of Africa
operations, data usage surge and Jio reducing discounts, Airtel, the
leader, is set to maintain its leadership in the industry.
In
terms of 3QFY18 performance, the company posted consolidated revenue of
Rs203 billion, down 5.3 percent sequentially, whereas its EBITDA margin
remained largely flat (q-o-q) and came at around 36.8 percent.
In
terms of geography-wise performance, Indian operations witnessed a
decline of 16.6 percent in EBITDA on a sequential basis and margin also
contracted by 173bps and came at 32.6 percent. What surprised us is the
performance of Africa operations, which posted the highest ever EBITDA
margin of 35.2 percent on the back of continuous cost control efforts.
In
terms of operating parameters, despite Jio’s aggressive tariff plans,
Airtel continued to add customers, up 9.1 percent on a y-o-y basis.
However, the company continues to witness a downward trend in its ARPU
which declined 28.1 percent (y-o-y) and 15.7 percent (q-o-q). We believe
that ARPUs would witness uptick once the industry consolidation is
complete.
Vodafone + Idea: To be forbidden brands?
Vodafone,
after merging with Idea, is set to become the leader in terms of the
number of subscribers but their dismal performance may put them back to
their original position, behind Airtel. The financials of both the
companies continue to weaken owing to the pricing pressure and falling
subscriber base.
For Idea, total wireless subscriber base
increased 3.3 percent sequentially whereas ARPU declined 13.6 percent,
leading to 130bps contraction in EBITDA margin that came at around 18.8
percent, lowest since FY07.
For Vodafone India Ltd, total wireless
subscriber base increased by 2.5 percent sequentially and ARPU declined
13.1 percent leading to 180bps contraction in EBITDA margin that came
at around 20.1 percent.
The relief measures announced by the
Cabinet recently would provide the most benefit to the merged
(Idea+Vodafone) highly leveraged entity as extension of tenor would lead
to 30 percent lower annual payment and the merged entity was crossing
the spectrum cap limit in various key markets and increased cap limit
would help it to retain full spectrum in those markets.
Valuations:
Amid recent weakness in the market, the upside potential from the companies has increased.
Bharti Airtel:
In terms of valuation, the Sum-of-the-Parts (SOTP) valuation gives
upside potential of 28 percent based on EV/EBITDA multiples of 9 and 6
times to India and Africa businesses respectively.
Idea: Based on 12 times EV/EBITDA multiple, the share price offers an upside potential of 7 percent.
Jio: Based on DCF valuation, RJio’s value is Rs 245, which will get added when valuing Reliance Industries.
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