The Hidden Trend that Could Boost Telecom Stocks in Years to Come...

According to the latest data revealed by TRAI, India's telecom regulator, the total telecom revenue jumped up by 13% YoY to US$ 26 bn during the financial year ending 2022.

In comparison to the financial year ending 2019, the number has increased by 52%.

This leap in telecom revenue comes on the back of tariff hikes undertaken by all telecom operators in November 2021.

Subsequently, their total revenues reported for the financial year ending 2022 have also shown a massive improvement.

While Bharti Airtel reported a 22% YoY and Reliance Jio a 18% YoY jump in business. Vodafone Idea reported a dip in total revenues due to high subscriber churn.

Apart from this, the regulator also reported some interesting numbers that spell out a few interesting trends. These include:

Trend #1: Change in incremental market share

In the financial year ending 2022, the top three telecom operators comprised 92.8% of the total sector revenues, with Reliance Jio leading the pack.

While Reliance Jio's market share was up by 1.6% to 39.5%, Bharti Airtel's shot up by 2.5% to 35.1% in the financial year ending 2022.

Vodafone Idea was the only one whose market share dwindled to 18.2%, down 2.4% from last year. And that is not a unique event.

Vodafone Idea's market share has been falling precipitously since the financial year ending 2018, from 38.5% back then to 18.2% now.

Conversely, Reliance Jio's market share has been advancing, from 10.8% in the financial year ending 2018 to 39.5% now.

However, this is the first year since the launch of Jio that Bharti Airtel's market share growth has outpaced Reliance Jio's, a source of optimism for Bharti Airtel shareholders.

Consequently, this is also the first time Bharti Airtel's incremental revenue growth was higher than Reliance Jio's.

Trend #2: The disparity in customer mix

The telecom customers are profiled into four types of markets, commonly referred to as circles in the telecom industry. These are Metros, A-circles, B-circles and C-circles.

But how is this important?

Not only is the growth profile of every circle is diverse, but every player enjoys a different level of share in each of these circles.

Therefore, analysing the prospective growth and the market share of the players in these circles determines their fate.

The total revenue in the Metro circles has grown by an astounding 38% in the past two years. The A-circle by 35%, the B-circle by 42%, C-circle by 54% in the past two years.

At a staggering 76%, the A-circle and B-circle together, command the largest share of the total telecom revenues. While Reliance Jio is the market leader in both segments, Bharti Airtel is a close second in the A-circle.

According to the latest data released by TRAI:

• Bharti Airtel and Vodafone Idea gained share in the metros
• Both, Bharti Airtel and Reliance Jio gained share in the A-circle and B-circles,
• Reliance Jio gained its share in the C-circle.

With just three dominant players in the Indian telecom market, let's find out who stands to benefit the most from these trends reported by the TRAI.

1. Bharti Airtel

While Bharti Airtel's market share growth has outpaced Reliance Jio's for the first time ever, its sustainability is questionable.

The company is a close second to Reliance Jio, reporting a wider subscriber base and higher total revenues.

But there are still some lingering concerns. Despite relentless data traffic of 19 GB per subscriber, it is still half of the volume of Reliance Jio.

Moreover, the new promotional offers by Reliance Jio may further hinder Bharti Airtel's data revenue growth.

On the financial end, the company has a highly leveraged balance sheet. But while the debt levels are high, the company has renewed its focus on deleveraging the balance sheet.

And with the change in the competitive landscape and stronger growth prospects, there is a good chance they might repay their debt sooner than expected. Bharti Airtel seems well-poised to grow briskly in the near term.

Bharti Airtel ranks among the top three telecom operators globally, covering over two billion people.

With over 350 m subscribers in India, it provides mobile services to over 20 telecom circles. Apart from this, it is also one Africa's largest telecom operators with over 110m subscribers across 15 countries.

The company's business remains strong. The current debt-to-equity ratio stands at 2.6x while the interest coverage ratio is 1.6x.

To know more, check out the financial factsheet and the latest quarterly results of Bharti Airtel.

2. Vodafone Idea

Vodafone Idea has been losing market share to Bharti Airtel and Reliance Jio for over five years.

Unfortunately, there has been no change as the recent data published by TRAI reinforces the same.

The company has been struggling operationally and financially. The incessant rating downgrades by credible agencies have led to increased financing costs, further hampering profitability.

While the promoter group, Vodafone Group Plc and the famed Aditya Birla group have pumped in Rs 45 bn, the company has been unsuccessful in raising funds from external investors.

Vodafone Idea is India's second-largest telecom operator by subscribers with over 250 m and the third-largest by revenue market share at 26%.

Considering the company has been losing market share, the revenues and profits have fallen in the past 5 years.

To know more, check out the financial factsheet and the latest quarterly results of Vodafone Idea.

3. Reliance Jio

Reliance Jio is the leader in the Indian telecom sector with over 400 m subscribers.

The unlisted player enjoys a widespread dominating presence in the high-growth sectors, boosting its subscriber base since the financial year ending 2018.

However, for the first time in 2022, the leader reported a tiny drop in subscribers.

The level of tariff aggression for gaining market share seems to have taken a back seat as Reliance Jio has been raising tariffs.

While the new trend, reported by the TRAI, seems to favor Bharti Airtel, we don't know how sustainable it is.

To conclude...

India, the second-largest telecommunications market in the world, with over 1.14 bn subscribers has always been plagued with fierce competition.

Constant tariff wars have led to a bumpy road to profitability for several years now.

While Bharti Airtel has managed to survive the hardships, Vodafone Idea has been torn into pieces by advancing aggressive players like Reliance Jio.

Even now, as the risk of competition remains, it has abated with the recent tariff hikes successfully implemented by all players.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.