Bharti vs. RCOM: The numbers - Views on News from Equitymaster

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Bharti vs. RCOM: The numbers

Dec 28, 2010

Continuing with our series comparing the , top telecom players in India in this article we will compare the key operating metrics of Bharti and RCOM, which will throw light on which is the better of the two. Let us first do a quick recap of what is contributing to the numbers for the two companies. For FY10, mobile business contributed almost 76% of total revenues for Bharti and almost 65% of total revenues for RCOM.

Clearly, the mobile or the wireless business is the largest contributor to revenues for both the companies. As a result, we would be comparing the operating numbers for the mobile business of these companies.

Let's first start with the revenue numbers over a period of time.

If we compare the average revenue per user (ARPU) of the two, we see Bharti clearly emerging as a leader.

Source: Company data

However, if we delve deeper and look at the revenue or rate per minute (RPM) profile we see a totally different picture. The reason why comparing RPM is better than comparing ARPUs is due to the business models adopted by the companies in India. In India, the telecom business is more like a ‘minute factory' wherein the minutes drive the revenues as well as the profitability for the companies. As minutes increase, the costs get apportioned over a larger base thus giving rise to lower cost per minute. The only thing driving profits then would be the rate that the company is able to charge for its minutes.

Source: Company data

While Bharti definitely started the day as a leader, RCOM has steadily caught up with it and now there is a neck to neck race.

Let us switch to the profitability picture now. Are these minutes equally profitable for the two companies?

Source: Company data

The story here is different. Bharti did suffer a drop in EBITDA per minute during the phase of intense competition in telecom at the end of 2008 and beginning of 2009. However, it was able to recover quickly and take its profitability to a level that is much higher than that of RCOM.

Thus, it is important for investors to compare the operating metrics of these companies keeping the shareholder returns in mind.

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3 Responses to "Bharti vs. RCOM: The numbers"

Anon

Jan 7, 2011

Read this:

http://www.business-standard.com/india/news/rcomm-shares-rise-1-after-bnp-upgrade/121425/on

There is NO other large cap in India today where the replacement cost is lower than the valuation. Every other company has valuation 2x or 3x or 10x the replacement cost.

The most overvalued Indian companies today? Infosys and TCS. As good as their management is, they are terrible investments at this point.

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Mr Telecom

Jan 4, 2011

Just don't short Rcom once it begins its recovery or you will be blown away.

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Gautam

Dec 28, 2010

Its good to see the comparisons. Rcom is seen as closing the gap with Bharti. Would you recommend buying Rcom at this stage?

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