Jio vs Airtel vs Vodafone Idea

Introduction

In this article, we will analyze Indian Telecom Sector detail. There are 3 telecom companies in India which are listed namely, Vodafone Idea, Airtel and Reliance Jio.

Reliance Jio isn’t directly listed but Reliance Industries is of which Reliance Jio is  a part. The extraordinary valuation that Reliance Industries is currently enjoying is also majorly supported by the underlying valuation of Reliance Jio.

How does the Telecom sector look right now? What is the future of Telecom sector?

  • The investments by institutional Investors in the companies like Bharti Airtel and Vodafone Idea is decreasing gradually. And the these free float share are being moved to the general public. So ultimately, general public is the one experiencing major losses.
  • Thus, which telecom company should an investor invest in? Or which telecom is the company that one should have on their radar for investment purposes? Let’s analyse that here:

Subscriber Base

  • Before the entry of Jio, Airtel used to be 1st, followed by Vodafone and Idea on 2nd and 3rd place respectively in terms of subscriber base.
  • Vodafone and Idea merged in to one company last year after which they became the biggest company in terms of customers, that is their subscriber base. They have a subscriber base of close to 40.3 Cr.
  • Currently, Jio is on the 2nd position. In 2016, they started to add customers and in almost within 3 years they have reached this position. They have a subscriber base of 30.6 Cr.
  • And now, Airtel has come down to 3rd position with a subscriber base of 28.4 Cr.
  • On May 7th 2019, the Q4 results of Bharti Airtel were declared in which they have told that only 50,000 new customers were added to their subscriber base in the period of Jan-March 2019. Whereas on the other hand, Jio is adding new customers in crores to its base. So, a vast distance between these numbers can be clearly observed. As for Vodafone Idea, though 40.3 Cr looks like huge number, but they have lost almost 4-5 Cr customers in the last 2-3 quarters. This is a very huge loss for them.

Financial Numbers

Financials of Telecom Sector Stocks
  • Both the companies have huge D/E ratio.
  • The companies have a debt repayment schedule of almost Rs. 11,000-12,000 lakhs every year.
  • And the companies are not able to keep up with this schedule because Interest Coverage Ratios are very low. The companies are having hard time even repaying the interest on the debt.

Debt Problems

  • Because of such negative and disappointing numbers all the credit rating agencies have given the debt papers of these companies Junk rating. Thus, these companies are finding it difficult to raise further debt.
  • Now, how will these companies raise money to pay these debt? The companies can do so by selling their asses, which Bharti Airtel has already started to do.
  • Some parts of Bharti Infratel is being sold. There talks to sell some stake in the African business. If one looks at the current financial numbers declared by the company one can see around Rs. 2,000 Cr in the other income which has come from selling their assets as a part of restructuring.
  • The other method to raise money is through equity. In times when their stock and the market as a whole is not performing well, no new investor would be interested. For this, Bharti Airtel has brought Rights Issue. How successful this decision is will be proved in the coming times.
  • Therefore, these two companies are left with just 2 option to raise money further to repay their debt, either to sale of their assets or though equity.
  • Reliance Industries has a debt of almost Rs. 3 lakh Cr. Though there are no clear numbers of how much of this is of Jio’s, but it would definitely be a sizeable portion. Thus, Reliance Jio isn’t facing debt problems as it has a strong Reliance Industries company and its business backing it.

Price Wars

  • Price wars here are for the prices of various calling, internet and value added services. Aggressive cuts are being made in the prices of these features and services.
  • Jio has started a price war which Vodafone-Idea are not comfortable with and are not able to cope with. And this might continue till the time Jio reaches 1st position.

Summary

  • In these troubled time, telecom companies are finding it very difficult to raise new funds.
  • Currently, Jio looks like a winner in terms of subscriber base. They have a clear plan and are well equipped to reach the 1st position as well.
  • Jio has no plans to stop the price wars until it has washed out the other companies.
  • As of now investors should stay away from Vodafone Idea and Bharti Airtel. If at all one really wants allocation in the telecom sector, then they can take allocation in Reliance Industries.