AGR order: Why Jio is set to gain more than Airtel as Voda faces collapse

With the sector heading towards a two-player market, the clear beneficiaries would be Bharti Airtel and Reliance Jio. However, within the two, Jio is expected to gain more than Airtel given its superior 4G infrastructure and expectations that a higher share of Vodafone Idea’s data subscribers will shift to its network. 

Vodafone has 304 million subscribers of which 45 per cent are data subscribers. 

The consolidation will help Jio accelerate towards its revenue market share target of 50 per cent from the current 34.9 per cent.

Rajiv Sharma and Anshul Agrawal of SBICAP Research said the recent developments are positive from a Jio’s perspective, as it may help the company to accelerate its market share aspirations of more than 50 per cent. 

In addition, the ability to raise tariffs may help the 4G market leader adding to its base of 370 million subscribers.

Most brokerages also expect tariffs to go up given the return of pricing power. Already incumbents had raised tariffs by about 40 per cent in December which is expected to start reflecting in their financials from the March quarter.

Airtel, too, is expected to gain from sector consolidation. 

While it will get some of the 4G subscribers from Vodafone, larger gains could come from the significant 2G base of Vodafone Idea. 

Analysts believe that the upside for Bharti Airtel would be ~80 per share if Vodafone shuts down. 

The reason the upsides are not more favourable is due to the impact on Bharti Infratel and therefore on Bharti Airtel’s valuations. Tenancy ratios for Bharti Infratel (share price down over 4 per cent) are expected to come down if Vodafone Idea ceases operations. Airtel’s tower rentals could in such as case move up increasing its cost burden.

In comparison, Jio does not have this baggage and plans to list its infrastructure arms and reduce debt. 

This coupled with market share gains should improve its valuations.

In a aletter to the Department of Telecom, Airtel said: "You will appreciate this is a complicated process, covering 22 circles, multiple licenses and a substantial period of time and hence, is time consuming.”