Bharti Airtel: Good going

The telco continues to attract a fair share of subscribers even in an increasingly competitive market.

Bharti Airtel continues to gain revenue share in the Indian mobile telephony market. The company’s share of wireless gross revenues, as Kotak Securities points out, has increased to just under 33 per cent at the end of June 2009 — the share at the same time last year was a shade over 31 per cent. That, in a market in which competition is getting keener with each player trying to outdo the other by offering attractive tariffs. While Reliance Communications rolled out its GSM network in January this year, offering free minutes to start with, both Vodafone and Idea Cellular have ventured into new circles in a bid to ramp up presence and Tata Docomo has just launched a GSM service with a unique offer — per-second billing. Bharti has been compelled to keep up — it recently came up with its Special Five scheme with local tariffs as low at 20 paise per minute.

Although Bharti was feeling the pressure — its share of net additions had come off to just under 20 per cent earlier this year — the three months to June saw the telco bounce back to gain a share of around 300-400 basis points. At the end of July, the share was up to just under 30 per cent. The company added 2.8 million subscribers both in June and July while competitors like Idea added 1.4 million subscribers in July, seeing a month-on-month fall of close to 12 per cent.

While Idea has gained share in the newer circles where it has rolled out services, it seems to be stagnating in a couple of circles where it is the incumbent. The environment, of course, continues to be challenging, especially with minutes of usage seemingly no longer price-elastic. Although penetration remains under 40 per cent and leaves enough headroom for growth, especially in rural markets, it’s unlikely that the players can increase their average revenue per user or revenue per minute. Nevertheless, given its scale, Bharti is well-positioned to weather the competition.

Since April, the stock has gained 34 per cent compared with a rise of 52 per cent for the Sensex, one reason being the potential deal with MTN. While the stock may not do too much until the deal comes through, at the current price of Rs 405, it trades at an EV/ebitda (enterprise value/earnings before interest, tax and depreciation) of 9 times for 2009-10 and is attractively valued.