If we recall correctly, Bharti Airtel was one of the first stocks to bounce back after the markets made its lows in March. It was expected to be one of the least impacted due to lockdown and in fact going to be a potential beneficiary due to on-going preference towards digitization across the board leading to more data consumption. The stock even managed to make all time highs and traded above the 600 mark. However, since May, the stock has somewhat lost its steam and has corrected nearly 29% despite strong momentum in the markets. So what is wrong with Bharti Airtel?
Are the fundamentals bad?
Well not really, the company is in a space which had very promising growth prospects and this pandemic has further aided growth story for the industry. Further despite strong competitive pressures from Reliance Jio, Bharti Airtel has managed to maintain its market share at nearly 27.8%. Additionally, the overhang of AGR dues is also behind us as Supreme Court has given telecom companies 10 years to pay AGR dues. Plus, it has become increasingly clear that if the telecom companies have to do well (profitability wise) to make investments into better technology, the ARPUs have to increase from here on. And Bharti Airtel currently has industry-leading ARPUs. Moreover, if we talk of brokerages, Bharti Airtel has somewhat become a consensus Buy amongst many brokerage houses.
Then what is wrong?
Truth be told even if the fundamentals are good, sometimes negative sentiments tends to overpower fundamentals which leads to decline in stocks prices. Similar is the case with Bharti Airtel as there has been constant bombardment of negative news flow for the company leading to negative sentiments. Confused?
Let’s delve into it.
Not a two-player market? Oh!
Firstly, the street had somewhat started pricing in a possible two player market in telecom space before the AGR Case verdict due to consistent market share losses, struggling financials of Vodafone Idea and indication of no more fund infusion by the promoters. However, Supreme Court allowing 10 years’ moratorium for payment of dues has provided a glimmer of hope for Vodafone Idea’s survival. In fact, the company has recently re-branded itself completely and are possibly in talks with giants like Verizon and Amazon for fund infusion.
Somebody stop Relaince Jio
India does not have any pure play listed companies in the consumer tech space just like US has its own FAANG (Facebook, Apple, Amazon, Netflix and Google). The closest we have in this space are the Telecom companies which can potentially become a bigger play in consumer tech thanks to their large subscriber base and digital offerings. However, as we all know some of the above FAANG names along with other large and established PE names have literally lined up to make an investment in Jio and now in Reliance Retail. Further, with respect to Vodafone Idea, Amazon which was supposedly in talks with Bharti Airtel just a few months back is reportedly (along with Verizon) said to be in talks for a investment in Vodafone.
That’s not it, the whole rebalancing by FTSE after MSCI
After a rejig by MSCI, FTSE announced that it will implement the recent changes to the foreign ownership limits of Indian companies over four quarterly tranches starting from September 2020. This could potentially lead to outflow of nearly 128 million dollars in Bharti Airtel.
So from pricing in a two player market to constant news of large deals by Jio, and the recent re-branding by Vodafone Idea and a possible deal with Amazon and Verizon has impacted sentiments. Further, Reliance in its AGM had announced that it is ready with 5G technology and can start trials as soon as the spectrum is available. The company has also planned to launch low cost smart phones to lure feature phone 2G users. The latest one been the new plans announced by Reliance Jio which has bundled large OTT platforms in its plan at an affordable cost has further added to the woes for Bharti Airtel.
What can change the tide for Bharti Airtel?
It would be interesting to see how this 3 player landscape shapes up going forward as one thing is becoming clear that enhancing digital offerings at affordable cost is the way forward for telecom companies. So the answer to the above question lies in the answer to this question – Will Vodafone Idea be able to raise enough capital to first survive and then keep competing to arrest the market share decline? If not, then aren’t we back to where we started, of the industry being a two player market.
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