Why Bharti Airtel stock is falling?

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Indian Telecom sector analysis | Why Bharti Airtel Stock is falling?

Reasons behind the recent fall in Bharti Airtel’s stock

Introduction

Currently, Indian Telecom sector is ruled by three players – Vodafone Idea , Bharti Airtel and Reliance Jio. While Vodafone Idea is facing major issues due to poor network conditions and mounting AGR dues, Bharti Airtel seems to be doing better in comparison. However, on 26th February’21, stock plummeted by ~15% from all time high of Rs 623. In this blog let us discuss the reasons behind this significant fall in the stock.

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Reasons behind fall in stock price of Bharti Airtel

Indian Telecom Sector

  • Currently, Indian Telecom sector has moved past its price war phase , it is in a consolidated form with mainly three players and has a good future outlook. 
  • The major structural change bought by pandemic i.e “Work from Home” culture is a boon to the Indian Telecom sector. This has led to a good earnings visibility for this sector.
  • Also, due to the shutdown of theaters because of lock-down, there is an increasing traffic on OTT platforms. This is also one of the major levers for telecom growth in future.
  • Indian Telecom sector also has very high entry barriers mainly because of the consolidated market structure and capital intensive sector.
  • Short term headwinds for this sector include the payment of AGR dues. This is particularly a headwind for Bharti Airtel and Vodafone Idea, however Bharti Airtel seems to be quite well placed.
  • Introduction of Jio’s new post-paid plans, huge AGR dues and declining subscriber base might not augur well for Vodafone Idea. This might result in a duopoly in India with only Bharti Airtel and Reliance Jio.
  • With increasing pricing power, there will be price hikes taken by Jio to increase the profitability.

Bharti Airtel Company Overview

  • Bharti Airtel is a leading telecom company operating in South Asia and Africa.
  • Airtel has its wide presence in 18 countries globally.  
  • One of the main reasons that Airtel is well placed to pay AGR dues is because of its wide presence. This has led to increased assets that the company can monetize to pay the dues. 
  • There is a significant uptick in the Average Revenue Per User (ARPU) from INR 129 to INR 157, registering a growth of ~21% from last year.
  • Company has healthy subscriber base of 28.7 crore. It has good reviews about its services, which also gives good  future outlook and earnings visibility.
  • In the past one year, there has been a significant data consumption jump, mainly led by work from home (WFH) culture and increasing preference for OTT apps.

Why Bharti Airtel Stock is falling?

  • Bharati Airtel is down by ~15% from its 52 week high of Rs. 623. Major reason for this stock correction is stake sale by one of the marquee investors.
  • Singapore-based investment company Integrated Core Strategies (Asia) Pvt Ltd on 26th February, 2021 sold ~3.7 crore shares of Bharti Airtel Ltd for ~Rs.2,062 crore through an open market transaction at ~Rs.556.
  • Average volume of shares traded in Bhrati Airtel is 3 Crore. When Integrated Core Strategies (Asia) Pvt Ltd sold ~3.7 crore shares, supply skyrocketed. This sent the stock price on a downward trajectory.
  • In the quarter ended September 2020, Integrated Core Strategies had sold Bharti Airtel shares worth ~Rs.1900 crore at a price of ~Rs. 513. In that last 6 months there has been no fundamental change in Airtel’s business. As a matter of fact, they’ve gained the most 4G subscribers beating their rival Jio.
  • Another reason that could have resulted in Bharti Airtel’s stock price plummeting to the lows can be the upcoming spectrum auctions commencing on 1st March’21 for 4G mobile networks. Bharti Airtel plans to invest Rs. 15,000-20,000 Crores, while Reliance Jio is expected to put up Rs. 50,000-70,000 crore towards the same.
  • Reliance Jio has also recently launched a 4G feature phone offer.  The two-year plan costs Rs 1999 and customers will get a handset along with unlimited voice calls, unlimited data which would include 2GB data per month. This could help them capture market share by signing up 2G/3G customers on other networks.
  • Hence, customers wanting to shift to 4G from 2G provider could end up taking Jio’s offer which is relatively cheap. Bharati Airtel could lose on potential clients here in the coming quarters.

What should investors do?

If you are an investor or plan to invest in Bharti Airtel, you must look at it as a long term play for at least 5-10 year horizon.  A subsidiary for Airtel’s digital platforms could soon be formed. There are still several marquee investors who have not taken a piece in India’s telecom story and could be interested in Bharti Airtel.

There is a duopoly slowly being formed in the Indian telecom markets. Both companies Jio and Airtel will enjoy the profits in the times head. With data consumption on the rise, earnings and growth visibility are clearer.

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