The Jefferies note on Bharti Airtel said the company is the key beneficiary of the rising tariffs and ongoing consolidation in the Indian telecom space
Jefferies said ARPU could rise 3-5% annually even beyond 2024-25
Mobile revenues and realisation per user in India could double between financial years 2020 and 2025, and the telecom sector has entered a phase of "tariff discipline" that is likely to sustain, according to a recent note by Jefferies.
A comparison of mobile ARPUs (average revenue per users) of over 25 countries shows that India's mobile revenues-to-GDP ratio at 0.7 per cent is among the lowest versus countries with similar per-capita GDP, implying scope for a rise in ARPU.
"A comparative analysis of over 25 markets indicates that mobile revenues/ARPUs in India could double over FY20-25 to USD 38 billion," it said.
With tariff discipline sustaining, Jefferies said ARPU could rise 3-5 per cent annually even beyond 2024-25, in line with trends across fast-moving consumer goods (FMCG) products and two-wheelers over the past decade.
"Our analysis also shows that countries with low competition have higher mobile revenue/GDP ratios. For example, Philippines, a duopoly historically, has mobile revenue/GDP ratio of 1.2-1.7 per cent versus Indonesia, a five-player market, where this ratio has been lower at 0.6-0.8 per cent," it said.
India could see doubling of sector revenues from an estimated USD 19 billion in 2019-20 to USD 38 billion in 2024-25, it said.
The report, issued last week, further said that the Indian telecom sector has entered a phase of tariff discipline which is likely to sustain. This is because competition is at the lowest it has ever been, "the market being a virtual duopoly", it said.
"Secondly, Reliance Jio is now the market leader with 35 per cent revenue market share and continues to gain subscribers at an encouraging pace. Thirdly, Vodafone Idea is unlikely to be a potential price disruptor, given that it already faces cashflow pressures driven by USD 16 billion debt and USD 7 billion AGR (adjusted gross revenue) liabilities," it said.
The note said that even after the high growth phase, ARPUs in India can rise further by 3-5 per cent beyond 2024-25 as pricing discipline sustains.
"This is in line with the hikes seen across FMCG products and two-wheelers over the past decade. Furthermore, the robust 24 million gross subscriber additions reported by both Bharti Airtel and Reliance Jio in 4QFY20 (fourth quarter of 2019-20) after the tariff hikes in December 2019 also indicates that the market is willing to accept tariff hikes," it added.
The Jefferies note on Bharti Airtel said the company is the key beneficiary of the rising tariffs and ongoing consolidation in the Indian telecom space.
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