Can Idea catch up with big brother Bharti? - Views on News from Equitymaster

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Can Idea catch up with big brother Bharti?

Mar 22, 2012

The arena of the telecom sector in India has undergone a complete transformation in the past few years. Competition has intensified as many new players have entered the sector. The cut throat competition has led tariffs to reach a new low. The sector has transformed from a growth one to one where only the fittest will survive. And survive they did. The two companies that we are referring to have managed to stay afloat in the turbulent waters. The companies are India's largest and fourth largest telecom players Bharti Airtel and Idea Cellular.

But which of them presents a better opportunity to an investor? The largest or the fourth largest?

In the next few articles, we will compare Bharti Airtel and Idea Cellular on different parameters. Our intention is to provide information to the reader so that he can decide for himself as to which company is better to invest in.

In this article we will start with evaluating the two companies on the basis of their subscriber and revenue market shares.

Bharti Airtel is undoubtedly the largest telecom operator in the country. Therefore, one might ask - "Is it correct to compare the market shares of the two companies? Won't this just reflect Bharti as the leader?"

In terms of size of operations, Idea undoubtedly lags way behind Bharti Airtel. In fact for quite some time, Idea was considered to be a younger brother of Bharti that was simply following the leader's footsteps. But the truth is far from this. The strategy adopted by Idea has helped it to slowly climb the ladder and gain market share. From the bottom of the market share pyramid, the company has slowly but steadily gained ground and reached the position of being the fourth largest telecom operator (by subscriber numbers) in the country.

Source: COAI
* Only includes subcribers in India

While clearly Bharti is the market leader in terms of subscriber market share, however, over a period of time its share of subscribers has been declining. Idea, on the other hand, managed to stabilize its market share after the decline that took place when new operators entered. In fact, since December 2010, the company has seen its market share increasing, albeit at a slow pace.

Let us now take a look at the revenue market shares of the two companies.

Source: COAI, TRAI

Bharti does emerge as a clear winner in terms of revenue market share. However, its total share has been declining in recent times. On the other hand, the revenue market share for Idea has remained steady. In recent times, it has also started to increase. Though the gap between the two is large, in a hyper-competitive environment it becomes equally important to maintain market share as gaining larger share. This clearly indicates that the subscribers acquired by Idea not just increase its subscriber base, but the company has also been equally successful in translating these subscribers into meaningful revenue generators for itself. On the other hand, Bharti has managed to maintain its leadership position but its success rate of maintaining higher market share both in terms of numbers as well as revenues, has been on the decline.

Idea clearly emerges as the winner in this round. But how does it rank in terms of financials and valuations? We will cover these points in the next articles.

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2 Responses to "Can Idea catch up with big brother Bharti?"

S C Gupta

Mar 23, 2012

The graphs of subscriber market share and revenue market share will provide greater clirity only when total subscribers and total revenue growth are also presented on the same graphs.

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Nidhin

Mar 22, 2012

Hi, looking forward to this comparison between idea and bharti.
Just would like to point out that Bharti has subscribers abroad in Africa, Srilanka and Bangladesh. The figures do not reflect those numbers...i guess.

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