Tag: Telecom

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Can IDFC First Bank Bounce Back from its Troubles?

IDFC or Infrastructure Development Finance Company and its subsidiary IDFC First Bank (formed in October 2015) have been under fire over the past few months. The IDFC Management has organized an informal conference call on September 14 to address concerns from investors. The management was bombarded with questions about their poor loan book, unsatisfactory financial performance, and dangerous exposure to the distressed teleco Vodafone Idea (Vi). As of August 31, 2021, its share price is much above than it was exactly a year back, yet still less than what it was in September 2016. In this piece, we explore what’s pricking IDFC First Bank and what lies ahead for its shareholders. 

Poor Loan Book And Additional Credit Costs

The company booked consistent profits in the financial year 2020-21. However, it recorded a loss of Rs 621 crores in its last quarter Q1FY22. The poor performance is owed to a jump in credit costs, poor quality of loans, and its high exposure to Vodafone-Idea. 

The company’s revenue for the quarter did go up by 11.08% over last year and 2.15% over the previous quarter. However, the credit costs and increasing provisions ate into its revenue. A loan book’s health is measured by two metrics, its Provisions and its Non-Performing Asset Ratio(%). The company’s Gross NPA went from 1.99% in June 2020 to 4.61% in June 2021. Its Net NPA (Gross NPA minus Provisions) has gone from 0.51% to 2.32% in the same period. 

To ensure that a bank doesn’t get into big trouble, it sets aside some money in proportion to its bad loans/NPA ratio. The process of setting aside such funds is called setting aside a Provision. IDFC First’s Provision went up by 54% from Rs 646 crore in Q4FY21 to Rs 1,001 crore in Q1FY22. The more the borrowers default on loans, the higher provisions the bank has to set aside. This time, the second wave of COVID-19 and poor asset quality led to IDFC First setting aside higher provisions. Additionally, the bank has been unable to control its operating expenses. Its Operating Expense went up by ~54% over a year, while its Total Revenue increased only by ~11% in the same period. 

Unsafe Exposure To Vodafone Idea

In the past few months, IDFC First shares were hammered down till August-end. Nevertheless, the stock regained its position throughout September. The stock has been under pressure since its loan book has high exposure to telecom operator Vodafone Idea. Vi is a financially distressed company. It has Rs 62,000 crore pending in Adjusted Gross Revenue (AGR) dues to the government. The company’s total debt is worth Rs 1.8 lakh crore. Out of the total debt, Vodafone Idea owes IDFC First Bank around Rs 3,240 crore. 

Essentially, IDFC First has 3% of its total loan book exposed to Vodafone Idea. The single-digit number isn’t insignificant. Even SBI, the largest lender to Vodafone Idea, has only 0.5% of its total loan book exposed to Vi. If the telecom company were to shut down completely, IDFC First Bank could face a huge blow. However, Vi’s shutdown is not certain as the government has provided a four-year moratorium to all telecom companies with pending AGR dues. IDFC First Bank had set a provision of Rs 324 crore, which is 15% of total exposure to Vodafone Idea.

Ideally, IDFC First’s share price revolves around news regarding Vodafone Idea. The day the government announced the moratorium for Vodafone-Idea’s AGR dues, IDFC First Bank’s shares rallied by ~4.5%. Apart from other indicators, an ideal investor should watch out for the status of Vi to map the share price of IDFC First Bank. 

Shareholder’s Concern

IDFC First Bank’s parent company IDFC Ltd is performing worse than its subsidiary. On September 14, 2021, IDFC Ltd. held an informal conference call to address investor’s concerns about the company’s performance in recent months. They were bombarded with questions from its shareholders. The entire conference call hinted towards dissatisfaction amongst the shareholders. They questioned the top-level management on CEO salary, management decisions, and the complexity in the structure of the company. They even addressed the loss in value for its shareholders and questioned the company about how it plans to address it. 

In the conference call, shareholders suggested two things: the sale of the Asset Management Business and a ‘reverse merger’ with its better-performing subsidiary IDFC First Bank. IDFC Ltd indeed plans to reverse merge with its subsidiary IDFC First Bank in which it holds close to 36.5% stake, mostly after the sale of its asset management business. You can check out the whole conference call here.

The Way Ahead

Despite some headwinds, why could IDFC First Bank be a good buy for investors? The reason is simple. Supportive technical indicators and a strong plan by the management. The company is ~30% below its 52 week high of Rs 51.4 per share. The moratorium provided by the government to telecom companies on AGR dues provided relief to IDFC First Bank shareholders. The share price rallied ~4.5% after the decision.

IDFC First’s management has some plans to turn the game around. The company plans to reduce its wholesale business (lending money to other big institutions) and increase its retail business (housing loans, personal loans, etc). The bank further plans to have at least 70% retail loans in its loan book in the next few years. This allows the company to diversify and reduce the burden of increasing corporate debt. India’s booming housing market in the coming years may support IDFC First’s plans of pressing on its retail business.  

IDFC First Bank is expecting to gain traction, reduce its credit costs, provisions for bad loans, and NPAs. This will eventually translate into very good profit numbers in the coming quarters and a rally in stock prices for the coming months. 

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Why Airtel Leads In Its Race Against Jio

There was a time when India’s telecom industry had a vibrant spectrum. One could choose between at least 6-7 telecom operators. Things took a hit when Jio was launched in India. India’s telecom industry was now reduced to only three private players. They are Jio, Airtel, and VI(Vodafone Idea). Airtel and Vodafone-Idea are currently burdened by debt(Read More On AGR Dues). Now the race is mainly limited to Airtel and Jio.

Airtel and Jio currently lead the market in terms of subscriber base. Bharti Airtel, despite being financially weak, has been giving a stiff competition to Mukesh Ambani-owned Jio Infocomm. That makes some spectators ask, what makes Airtel so special? Can Airtel lead in the race against Jio? In this piece, we explore the factors that have made Airtel more viable in recent months and what lies beyond it. 

Airtel Q4 FY 2020-21 Result Highlights

  • Bharti Airtel published its quarterly results for Q4FY21 on Monday, May 17, 2020. The results, although fairly good, were below analysts’ expectations. The share price of Airtel was down 2.25% by end of the day. 
  • Bharti Airtel’s revenue stood at Rs 18,338 crore, up by 17.5% as compared to last year, but down by 2.9% as compared to last quarter. 
  • The net profit for the quarter was Rs 759 crore, as compared to a loss of Rs 5,237 crore in the same quarter last year. 
  • The company’s Average Revenue Per User(ARPU) fell to Rs 145 from Rs 166 over the past year. The company grew its 4G customer base by 4.3 crores(~31%) over the year. The 4G customer base grew by 8.3% QoQ. 
  • The company’s mobile business revenue grew by ~19%. Its broadband revenue(Airtel Home Services) grew by~ 27% YoY adding 2.74 lakh subscribers in the segment this quarter.
  • Geographically speaking, Airtel’s majority revenue comes from two countries, India and Africa. Airtel Africa’s revenue grew by 21.7% YoY in Q4FY21.

Airtel Vs. Jio: A Tough Run?

Airtel has managed to stand strong on its feet despite strong competition from Jio. There are reasons to believe that Airtel might come up stronger. There are some factors to consider though.

Subscriber Base

As of March 2021, Jio leads the market with a total of 41 crore subscribers, whereas Airtel has 34.4 crore subscribers. 

However, it should be noted that not all of Jio’s subscribers are actively using its services. According to TRAI, the ACTIVE subscriber rate of Jio was just 78.15%. For Airtel, 97.47% of its subscribers were active on their network, beating Jio by a staggering ~20%.

In January 2021, Airtel added 3 times MORE subscribers than Jio. Airtel added close to ~6 crore subscribers in January, whereas Jio added only ~2 crore subscribers beating Jio for six straight months. However, Jio managed to get back at its game in February adding 6 lakh more subscribers than Airtel. The second COVID wave can severely impact Airtel’s subscriber count.

Broadband Business

According to TRAI data, Jio is leading the broadband business in India having ~41 crore subscribers versus Airtel which has ~17 crore subscribers.

However, Airtel’s broadband game should not be undermined. With its flagship product Airtel Xtream, Airtel was clocking in 10,000-20,000 subscribers per month which has now increased to 90,000 subscribers a month. Airtel has onboarded many small-time cable operators adding more than 72 cities to its list in the first 3-4 months of 2021. It offers bundled packages where one can avail of internet services, TV channels, and OTT platforms all in one. It has also been catering Work-From-Home packages of individuals and corporates. 

Non-Telecom Business

Jio earns only 6% of its income from non-mobile businesses. Airtel on the other side earns close to ~21% of its revenue from non-mobile businesses. This serves as a relative advantage to Airtel since a deface on the telecom business won’t affect the other side. Airtel’s non-telecom businesses include Airtel Xtream, Airtel DTH, Airtel Payments Bank, etc.  

Airtel Africa

During the COVID-19 lockdown period, while Airtel India lost close to 80 lakh subscribers in the first quarter of this year, Airtel Africa GAINED close to 1 crore subscribers. Airtel Africa contributed to 30% of Bharti Airtel’s consolidated revenue and has been increasing consistently over the past few years. In November 2020, we at marketfeed did a piece on Airtel Africa’s business model and everything that it was doing right. You can check out the article over here.

5G

Jio has already announced that it is planning to launch 5G in India. Airtel had announced last year that it had already tested its 5G network at an industrial area in Hyderabad. Nevertheless, Jio is running for the money when it comes to 5G networks. This is because it is not ‘burdened’ by the impediments arising from the existence of 2G or 3G cellular networks, unlike Airtel. To be specific, there are some fixed costs associated with owning  2G and 3G cellular towers, with a shrinking user base for these services. Owning 2G and 3G spectrum might not turn out to be cost-effective for Airtel. Moreover, Jio has actively been working on acquiring or partnering with companies involved in taking the 5G project ahead.

What Lies Ahead?

Airtel’s ARPU fell sharply from Rs 166 to Rs 145. Besides, Reliance Jio’s ARPU fell from Rs 151 to Rs 138 this quarter. What was the reason for this fall? The fall in ARPU was due to scrapping of the Interconnect Usage Charge(IUC) by TRAI. IUC was paid by one carrier to another whenever its customers made voice calls to a phone number in the rival network. The more a carrier receives calls from another carrier, the more money it would make by IUC. Jio was a net receiver of IUC, while Vodafone was a net giver. Airtel was somewhere in between. Yet, the scrappage of IUC did impact Airtel considering that it was the second-largest telecom operator in the country. Jio was affected a little more. 

What is worth noting is that Airtel has managed to grow in business given the unfavorable circumstances in the telecom sector. There is definitely some good work going on in its management and strategy side. Airtel has announced a set of free recharge packages for its low-income consumers benefiting more than 5.5 crore users amidst the ongoing COVID-19 second wave. While Airtel continues to expand its footprint, and with the 5G spectrum around, it would be worth noting how Airtel performs throughout the COVID-19 second wave and how it plans to compete in the 5G regime.

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RailTel IPO: Should You Invest?

RailTel Corporation of India Limited has come up with an IPO. The issue opens on February 16, 2021, and closes on February 18, 2021. RailTel Corporation of India Limited is an Information and Communications Technology (ICT) company. You might have heard about RailTel broadband near your houses. It is a Mini Ratna (Category I) PSU, wholly owned by the Government of India and run by the Ministry of Railways. Let us find out more about the IPO.

The Business of RailTel

RailTel was incorporated on Sept. 26, 2000, in order to modernize the existing telecom infrastructure for train control, operation, and safety. It also aimed to generate additional revenue by creating a nationwide broadband and multimedia network by laying optical fiber cable by using the right of way(ROW) along the railway tracks. It intends to host telecom players at railway stations and assist them in disbursing 5G networks.

The company provides a number of services such as:

  • Telecom Network Services: National Long Distance to carry long-distance telecommunication services and includes various teleservices including voice, data, fax, text, video, and multimedia. Also, act as an internet service provider(ISP) and offer retail broadband services through the ‘RailWire’ platform.
  • Telecom Infrastructure Services: To provide storage, power, cooling, and physical security for servers and networking equipment of our customers and connect them with a variety of telecommunications and network service providers.
  • Projects (System Integration Services): National Knowledge Network and Bharat Net (formerly, the National Optical Fiber Network).
  • Data Center and Managed Hosting Services: Data Centre and Managed Hosting Services: It offers a variety of data center services including Infrastructure as a Service or IaaS, dedicated hosting, managed services, cloud computing, managed e-Office services, disaster recovery services, Aadhar authentication services, and other IT related services such as load balancing services, application hosting, bandwidth services, and advanced firewall services
  • ICT Hardware, Software, and Service System Integration Projects
  • To Provide Digital Services To Customers

Financial Position of RailTel

  • The company revenue has grown at ~7.5% CAGR for FY20. Earnings Before Interest, Tax, Depreciation, and Amortization(EBITDA) has grown at ~4.5% over 3 years. The company’s net worth has grown ~3.6% over the past 3 years.
  • The company holds a net profit margin of 13% and close to zero-debt.
  • It has right of way along 67,145 route km of railway track connecting 7,321 railway stations for laying optical fiber cables. As of now, It has an optical cable network of 59,098 route km connecting 5,929 railway stations.

Risk and Rewards

  • The company will help set up internet and broadband services in rural areas. The Indian Railways’ connectivity even in the remotest corners of the country will be an added advantage to its revenue source. At the same time, the company will not have to pay for fixed land assets as it will be using the railway track’s right of way to lay cables.
  • It has helped the Indian Railways in implementing payroll system, ticketing system, freight operations information system and is currently involved in the execution of various other projects. RailTel is required to share 7 percent of its gross revenue with Indian Railways.
  • The company will also have an added advantage with the upcoming 5G infrastructure. Telecom companies might prefer using RailTel’s infrastructure because of its efficiency and geographic reach. 
  • It holds regulatory risks like changes in laws, license terms, and government policies that can potentially affect the business. The company needs to keep pace with growing technology, it can lose customers and subscriber base. 
  • The company has a high dependence on PSU customers. For FY20, close to 25% of its income from Indian Railways. The Government prefers RailTel as a service provider in telecom and network-infra related services for other PSUs. If the PSUs were to have a change in investment plans, the company might take a dip in revenue. It needs to increase its private customer base. 

The IPO in a Nutshell

IPO Opening DateFeb 16, 2021
IPO Closing DateFeb 18, 2021
Issue TypeBook Building
Face ValueRs 10 per equity share
IPO PriceRs 93 to Rs 94 per equity share
Lot Size155 Shares
Min Order Quantity155 Shares/ Rs 14,570
Listing AtBSE, NSE
Issue Size87,153,369 Eq Shares of ₹10(aggregating up to Rs 819.24 Cr)
Offer for Sale87,153,369 Eq Shares of RS 10(aggregating up to ₹819.24 Cr)

The entire issue is Offer for Sale, that is, promoters getting money. No extra funds are being raised by RailTel from this IPO. Do not apply for more than 1 lot, as the issue will be oversubscribed anyway.

Will we Invest?

RailTel Corporation of India Limited has had a grey-market premium of 50%. It has seen more interest in the market than its competitor IRFC, which had a not-so-good IPO listing. It is the 6th railway company to go for an IPO. RailTel has shown a fairly good financial performance, but very innovative and strong growth potential. It had shown a good interest from retail investors.

The company needs to look out for private clients, currently, the company only serves major PSUs including the Indian Railways. This is reflecting in its slow but positive revenue growth. The consumer-facing side of the business has also been gaining a lot of buzz recently for the good service being provided, but it is still small. Hopefully, this is sustained in the long term.

Considering the strong financials, good valuation and market sentiments, the IPO can give a good return both for short term and long term and I will be investing.

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With 5G Spectrum Rolling In, Here’s Where You Should Invest

“Jio will pioneer the 5G revolution in India in the second half of 2021”, said Mukesh Ambani at the Indian Mobile Congress(IMC) in December last year. With Jio as the torchbearer, 5G is expected to roll out soon in our country. Jio has said that instead of importing technology, it is building its in-house 5G technology under ‘Make In India’ and ‘Atmanirbhar Bharat’. Other network providers like Airtel, Vodafone-Idea, and BSNL will follow the trail.

The 5G technology will be a revolution for the world of networking. It will fuel market opportunities in India. Companies involved in telecom, optic fiber, technology, infrastructure, and much more. The question is, how do we profit off this revolution? Where should one invest to stay with the 5G wave? Let Us Find Out.

Sectors to Benefit

The 5G infrastructure will need resources from multiple sectors. For convenience, we have classified the sectors as follows:

  • Power
  • Tower Infrastructure
  • Cabling and Networking 
  • Mobile Service Provider

Power

5G Network is going to be a power-intentive project. 4G itself hasn’t managed to penetrate the rural areas due to the lack of availability of power and infrastructure in those areas. This is when Power Grid Corporation of India(NSE: POWERGRID) comes into the picture. NTPC and Adani Transmission can be additions. Adani Transmission(NSE: ADANITRANS)

Whenever there is a power outage, the diesel-generators would kick in to ensure seamless transmission. So far, Mahindra Powerol has majorly supplied diesel-generators to telecom majors like Reliance Jio, Indus Towers, Bharti Infratel, Viom Networks, American Tower, Telesonic Networks, Etisalat, Ooredoo, Tata Tele, Vodafone, Nokia, BSNL, and MTNL across India and globally. Cummins India(NSE: CUMMINSIND) is another major generator manufacturer.

Tower and Infrastructure

With 172,094 towers and 314,106 co-locations, Indus Towers is a major tower manufacturer that provides services to almost all telecom providers in the country.  Indus Towers was merged with Bharti Infratel. Indus Towers can expectedly see a spike in profits once 5G starts rolling out. Indian Telephone Industries Limited(NSE: ITI) is another central-government owned company that manufactures a range of telecom equipment.

Tech Mahindra(NSE: TECHM) is also foraying into the 5G world. Tech Mahindra in partnership with CISCO will provide network infrastructure assessment and consultancy services for 5G. It states that it also has the technology to build a full-fledged 5G infrastructure.  

Cabling and Networking 

Sterlite Technologies(NSE: STLTECH), provides FTTH (fiber-to-the-home) services. An example of FTTH is JioFiber. Sterlite had bagged a huge order from Reliance Jio for the same in November 2018. Sterlite CEO Anand Agarwal, in December 2020, said that the company is planning to spend Rs 300 crores to increase its capacity for optical fiber cables from 18 million to 33 million fiber kilometres. He also said that the company is planning to hire 300-400 people this fiscal to fuel the 5G project for the company.  Sterlite is slowly shifting space from being just a fiber optic cable company to a tech company. In December 2020, Sterlite launched a 5G indoor small cell called – ‘Garuda’. To Know More, Click Here.

HFCL or Himachal Futuristic Communications Ltd(NSE:HFCL) is also working with Jio to lay cables for their FTTH services. It is the largest manufacturer of FTTH cables in India with close to 6 lakh km per annum under its cover


Tejas Networks(NSE: TEJASNET) is another major company working at providing hardwares, tools and services along with consulting in 5G. To know more about what the company has to offer, check out their website over here.

Reliance Jio owns a majority stake in DEN Networks(NSE: DEN) and Hathway Cables(NSE: HATHWAY) which also deal in fiber optic-based services along with telecommunications and cable networking.

Service Providers

For 5G, Reliance Jio will be at the front of the race. Other telcos like Vodafone-Idea and Bharti Airtel are stuck in a financial crunch and are tied up by the spectrum dues worth thousands of crores to be paid to the Government. However, their improving financial positions and rebranding in the case of Vodafone Idea(to VI), has made the future a little optimistic for the companies. It won’t be before long that Vodafone-Idea and Airtel will also have their hands on the 5G spectrum. Airtel has been testing out 5G on their 4G spectrum, but this is not with real 5G speeds, rather just more faster 4G.


Conclusion

Unlike the US, India does not have stocks that are fully focused on 5G tech. As India comes out of the COVID-19 pandemic and the GDP growth rate normalizes, businesses get back to normal, you can expect more companies to get involved in the 5G project. From an investor’s perspective, one should look for those stocks that go into making ‘Network Infrastructure’. Areas like optic fibres, network cables, telecom consulting firms, companies making generators, tower infrastructure, and steel. Reliance Jio can be the focal point since it is expected to be the first company to roll in 5G in India.  

5G is going to be a long game, yet a game-changer. The 5th generation of telecommunication won’t just mean speed, it will mean a lot more than that. The 5G will bring with it a lot more like low latency, higher coverage, greater connectivity, and efficiency. 4G got along with it, Smart TVs, Smart Homes, Smart Speakers, and even Auto Driven Cars. Ever imagined what 5G with itself on the way?

Let us know about which stocks you think may benefit from 5G in the comments down below.

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Bharti Infratel Merges With Indus Towers – All You Need to Know

One of the biggest mergers in India’s telecom industry was officially completed on November 19. Bharti Infratel Ltd. has merged with Indus Towers to create our country’s largest telecom infrastructure firm. This is surely a massive power play within the major telecom companies in our country. Let us understand the details of this merger, and find out how it would be beneficial for the companies involved.

Company Profile – Bharti Infratel

Bharti Infratel Limited is one of the world’s largest telecom tower infrastructure providers. It was incorporated in 2006 as a subsidiary of Bharti Airtel Limited. They have over 39,000 towers across 18 states in India. Our country has a total of 22 telecom circles, and Bharti Infratel is present in all of them. The company provides Shared Tower Telecom Infrastructure services. This essentially helps telecom operators to offer highly affordable telecom services to its customers. Interestingly, Bharti Infratel also had a 42% stake in Indus Towers before the merger.

As of March 2019, Bharti Airtel and Nettle Infrastructure Investments Ltd. hold 18.3% and 35.18% stake, respectively, in Bharti Infratel. A point to be noted here is that Nettle is also a subsidiary of Bharti Airtel. This means that Bharti Airtel has a total shareholding of 53% in its telecom infrastructure firm.

Company Profile – Indus Towers

Indus Towers was established in 2007 as a joint venture between Bharti Infratel, Vodafone, and Aditya Birla Telecom. The company was formed to ensure that a separate ‘telecom group’ was formed to dominate 15 telecom circles in India. Before the merger, these four companies had a specific stake in Indus Towers: 

  1. Bharti Infratel (42% stake)
  2. Vodafone Group Plc. (42% stake)
  3. Vodafone Idea Ltd. (11.5% stake)
  4. Providence (4.85% stake)

This telecom infrastructure firm has over 1,22,730 towers in 15 circles across the country. It also has the widest coverage in India. The company had already achieved 288,013 operators, a first in the telecom tower industry globally.

The Merger

A Timeline of the Merger

Let us first look at the timeline of this merger. It was in 2018 that Bharti Infratel initially announced plans to merge with Indus Towers. They had even received regulatory approval for the proposed merger from the Department of Telecommunications (DoT), in the following year. Unfortunately, some of the companies that were involved in this merger were struck with major hurdles. 

Since its entry in 2016, Reliance Jio has completely revolutionised the telecom sector with its cheap prices. This had ultimately led to a price war among leading telecom operators. Some were even forced to close down their operations. Also, a Supreme Court verdict in 2019 stated that Vodafone Idea and Bharti Airtel had to pay unpaid dues worth thousands of crores to the government. You can read more about the verdict on Adjusted Gross Revenue (AGR) of service providers here. Due to these issues, there was a significant delay in going ahead with the merger of the two telecom infrastructure firms.

Against all odds, an official announcement was made by Bharti Infratel on August 31, 2020. The Board of Directors of the company had approved the proposed merger with Indus Towers. The company approached the National Company Law Tribunal (NCLT) to ensure that the merger goes through necessary legal proceedings. On 22nd October, they received the approval from NCLT to go ahead with the ‘Scheme of Amalgamation’. 

On November 19, Bharti Infratel Ltd. announced that it has finally completed its merger with Indus Towers. According to the terms of the arrangement, the merged company will be referred to as Indus Towers Limited. 

Details of the Merger

  • Let us now look at the details of the completed merger. The total shareholding of Bharti Airtel (along with Nettle) in Indus Towers Limited will be 36.73%.
  • As per the agreement, Vodafone Idea had opted to sell its entire stake in Indus Towers. Hence, It has now received a sum of Rs 3,760 crore for its entire shareholding in Indus Towers. This would help the troubled telecom company, as it is currently looking for multiple financing options to cover its dues. 
  • The board of Bharti Infratel has also allotted 75.78 crore equity shares of Rs 10 each to the Vodafone Group Plc. This amounts to a 28.12% stake in the newly merged entity. Providence has been allotted 8.75 crore shares at Rs 10 each. Thus, Providence (or PF Asia Holding Investments [Mauritius] Ltd) has a 3.25% stake in Indus Towers Ltd.
  • Bimal Dayal, who was the Managing Director and CEO of Indus Towers, has been appointed as the CEO of the merged entity.
  • The combined entity has become the largest tower company in the world outside China. It has a pan-India tower reach with over 1,63,000 towers across 22 telecom service areas. Bharti Infratel has also mentioned that the new entity would have a turnover of over Rs 25,000 crore, and control more than a third of the tower industry in the country.
  • Bharti Infratel has also estimated that merging of both tower companies would help them save close to Rs 560 crore annually. This will help Bharti Airtel to focus on covering their dues to the government.

Shares of firms involved in the merger saw a huge jump on Friday (November 20). Bharti Infratel’s shares saw a jump of 17.8% and closed at Rs 219.05. The share price of Vodafone Idea saw a rise of 8.65% and closed at Rs 10.05 on the NSE.

Conclusion

This merger will prove to be a complete game-changer in India’s telecom sector. With improved tower technology, we would be able to obtain better services from our telecom operators. Let us hope that this merger would also help people living in remote areas to get better network facilities. At a time when the whole world is relying on the internet to complete daily tasks, maximizing the potential of telecom towers should be made a top priority. 

Moreover, this has been an opportunity for telecom companies such as Vodafone Idea and Bharti Airtel to obtain the necessary funds to cover up their AGR dues. However, there is a lot more money to be raised, and both companies are coming up with new methods to obtain it. Let us look forward to seeing if they can pay back the government within the specified time.

Will Indus Towers Limited be able to exceed all expectations and become the best telecom infrastructure firm in the whole world? Or is it just another desperate and final attempt by Jio’s competitors? Let us patiently wait and watch.

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Airtel: Struggling in India, Thriving in Africa

Airtel has been in bad waters in India for almost a decade. There are some reasons for it. Firstly, there are the taxing regulations and interventions by the TRAI or the Telecom Regulatory Authority of India. Then comes the one-and-only, Reliance Jio, which changed the face of the Indian telecom industry. The price competition that it offered threw a major blow to its counterparts in India. Airtel was one of them. However, in a land far far away, Airtel seems to be making some big bucks. That land is the African Sub-Continent. So what makes Airtel Africa different from Airtel India?

The Market Of Airtel Africa

Airtel Africa consists of 14 countries under it. The biggest market for Airtel Africa is Nigeria, which contributes to more than 40% of its total revenue. Africa is an unexplored place in terms of telecom ventures, therefore Airtel saw potential in exploring Africa for a stint in telecom. Airtel Africa was officially launched in June 2010. Since then Airtel Africa has gained a subscriber base of 111 million people, which is 11.1 crore users. 

Why did Airtel choose Africa of all places though? What separated the African telecom market from the Indian market is its low-competition, its low population density, easy availability of spectrum, no strict regulatory authority in Africa unlike the TRAI in India. Also cheap availability of resources like land and labour, and finally, the immense potential in the unexplored African telecom market also makes the market very lucrative. 

Airtel Africa also has its own mobile money service, Airtel Money, which includes payments systems, micro-loans, savings, and international money transfers with an 18 crore user base. Airtel Money contributes close to 9% of Airtel Africa’s total revenue. Through this Airtel is promoting financial inclusion in the region.


Is Airtel Africa a lifesaver? 

  • Airtel Africa contributes close to 23% of Bharti Airtel’s total revenue. After the pandemic, the September 2020 Q2 that the contribution of Airtel Africa to the consolidated revenue increased by 5%.
  • During the COVID-19 lockdown period, While Airtel India lost close to 80 lakh subscribers in the first quarter of this year, Airtel Africa GAINED close to 1 crore subscribers. The COVID-19 pandemic did not impact the financials of Airtel Africa as much as it impacted Airtel India’s performance. This is because of the low population density and far fewer COVID-19 cases in Africa, as compared to the rest of the world. 
  • Airtel Africa’s ARPU or Average Revenue Per User is generally 35-40% more than that of Airtel India’s. Airtel Africa’s ARPU was Rs 210(or $2.8) as compared to Rs 162 for Airtel India as of September 2020. This is mainly due to less competition, unlike in India.
  • Coming to deploying funds ‘efficiently’, Airtel Africa is performing much better than Airtel India. Airtel Africa’s average Return on Capital Employed(Read as Capital Invested) is 13% as compared to Airtel India’s 6%, over a period of five years. This means that for every Rs 100 of capital invested Airtel Africa makes Rs 13 as profit, whereas Airtel India makes only Rs 6 as profit.
  • Airtel Africa, which was a debt-ridden company since inception, has almost halved its debt over the years. Whereas Airtel India continues to mount more and more debt, with the AGR dues issue adding fuel to the fire. The Debt/Equity ratio has decreased over the years for Airtel Africa. The Debt/Equity ratio shows how much a shareholder is exposed to debt-related risk. The lower the ratio, the better the financial health of the company.

The company is also looking to sell its tower assets to reduce debts, While the world is racing towards 5G, Africa hasn’t touched the finishing line for 4G. Due to the low population density, telecom operators have to spend more on infrastructure to cover a greater user base.

The higher cost of deployment makes it harder for telecom operators to roll out 4G and increase its coverage. Since the coverage for 4G is less, users prefer switching to 2G/3G for its convenience. Sub-Saharan Africa still awaits investment in 4G technologies, 4G is where the investment potential lies and unused 4G capacity. Companies like Vodacare, MTN, and Airtel Africa are filling that gap.

Having adopted the correct cost management strategies, debt management, and marketing, Airtel Africa is filling the gap for 4G and possibly even 5G. Airtel Africa has recently spoken on its ‘readiness’ on 5G technology in Nigeria.

If Airtel Africa maintains its current subscriber growth, continues to reduce its dependency on debt, faces no unfair competition, and maintains its liquidity, it can surpass major telcos in Africa and become the blue-eyed boy for Bharti Airtel. 

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Editorial Editorial of the Day

Why did Reliance Fall? In-Depth Q2 Results Analysis

Probably, the most eagerly awaited results came out late on Friday night. Mukesh Ambani led Reliance Industries reported a 15.05% year-on-year (YoY) drop in consolidated net profit at Rs 9,567 crore. This number was at Rs 11,262 crore for the corresponding quarter last year. The consolidated revenue from operations also fell by 24% to Rs 1,16,000 crore from Rs 1,53,000 crore reported a year ago.

Mukesh Ambani, Chairman and Managing Director of RIL, said: “We delivered strong overall operational and financial performance compared to the previous quarter with recovery in petrochemicals and retail segment and sustained growth in the digital services business. Domestic demand has sharply recovered across our O2C business and is now near the pre-Covid level for most products.”

Let’s have a deeper look at each segment.

Refining & Marketing (R&M)

Economic activity in the R&M segment was highly impacted by Covid-19. EBITDA fell by 50% YoY and 21% QoQ to Rs 3,002 crore. This was because the Gross refining margins (GRM) fell to $5.7/bbl from $9.4/bbl from the same quarter last year. (GRM refers to the earning on turning every barrel of crude oil into fuel.)

[Source: Quarterly Presentation] (Global oil demand growth)

Due to the easing of lockdown & preference for personal travel rising, demand for refined oil products like jet fuel saw an increase. The company is positive that the demand for fuels like gasoline and jet fuels will further increase in the third quarter. Even with lower margins, Reliance was able to outperform in the Asia Pacific and European refining margins in the challenging business environment. But with negative global sentiments in the oil market which leads to low GRM, the company might struggle in the longer run.

Reliance Jio

The telecom arm of Reliance reported another dominant result. Their market share in India’s mobile market reached 35.03%. Reliance Jio declared a 13% quarter-on-quarter (QoQ) and 185% year-on-year (YoY) rise in net profit. EBITDA rose by 8.7% QoQ to reach at Rs 7,971 crore.

Amidst the pandemic, Jio became the first mobile service provider to cross the 40-crore customer mark in India. According to the Telecom Regulatory Authority of India (TRAI), Jio added over 35 lakh subscribers which helped it cross the 40 crore mark. As of September 30, 2020, their total customer base stood at 40.56 crores which 1.8% higher than the previous quarter. Their total wireless traffic also grew by 1.5% and amassed to 1,442 crore GB.

ARPU or Average Revenue per User is an important metric for telecom companies. It helps them to get an idea of how much they are earning from a customer on an average. Jio’s ARPU touched Rs 145 per month this quarter. Last quarter, this metric was at Rs 140 per month. Also, there has been a constant uptrend in Jio’s ARPU from the past four quarters.

Q2FY20Q3FY20Q4FY20Q1FY21Q2FY21
120128130.6140.3145
(Jio’s ARPU in rupees over the quarters)

Without a doubt, Reliance Jio has been a constant driver for RIL as a whole. Thus, it tells how Reliance wants to position itself as a tech player in the future.

Reliance Retail

The retail segment of the company rebounded sharply in the second quarter after a huge slump in Q1 due to lockdown. Revenue from operations rose by 30% QoQ to reach at Rs 36,566 crore. Last quarter was marred by the shutdown of retail shops and fears of people venturing out of their home.

In Q1FY20, Reliance Retail reported an EBITDA of Rs 1,079 crores. This quarter, EBITDA has increased by a whopping 86% to Rs 2,006 crores. When compared to last year, the operating profit of the segment fell by 14% as normalcy is yet to be achieved during these COVID times. With easing restrictions, Reliance Retail was able to operate 85% of its stores. 

A huge jump in the revenue was noticed in the consumer electronics products. Revenue increased by 2X over the last quarter. The apparel segment of Reliance Retail also registered amazing growth. Revenue from Fashion & Lifestyle was almost at 3X over the previous quarter.

“Increased footfall and store openings have contributed to the rebound in retail revenues, with 85% of stores now open,” V. Srikanth, the joint chief financial officer of RIL. 

Apart from the results, RIL has seen some huge investments in their retail arm. Around 8% of the stake has been sold to prominent global investors like Silver Lake, General Atlantic, KKR, Mubadala and a few more. The total investment is amassed to Rs 37,710 crore. At the same time, Reliance Retail has acquired companies like Netmeds, Grab, Nowfloats, C-Square and Shopsense (Fynd).

Petrochemical

The petrochemical segment experienced a resurgence in the second quarter. EBITDA reported a rise of 35% QoQ to Rs 5,964. This is still significantly below than Rs 8,964 crore what the company recorded in the same quarter last year.

The overall increase in household spending helped the company to record a 17.8% growth in the total revenue. Q2’s segment revenue stood at Rs 29,665 crore as compared to Q1’s Rs 25,192 crore.

The sequential rise can be attributed to an increase in demand in the agriculture, auto and FMCG sector. The lockdown forced many labours to lose their jobs. This raised the presence of labours in the market, thus, driving the wages expectations lower. It helped the Indian textile industry to get cheaper labour and cut their cost of production.

To sum up

The company showed a strong rebound in its performance when compared to the previous quarter. Yet, it was below what they produced in the same quarter previous year. But that was expected due to Covid-19, right?

Reliance Jio performed better than what the market estimated. Reliance Retail also contributed to give a positive outlook to the market. Petrochemicals displayed a robust fight to give good numbers. But two of the core segments of the company, refining & marketing and oil & gas (upstream), have struggled for another quarter. Main reason? Lockdowns all over the world due to Covid-19.

On one hand, Covid-19 has raised the demand of digitalization which has aided the Jio segment. On the other side, the core business of Reliance, oil & gas continues to struggle. Reliance owns the largest refinery in the world in Jamnagar. It was their oil & gas business which helped them become what it is today. This quarter, the EBITDA through the oil & gas sector (upstream segment) was reported to be – Rs 194 crore. This is way below than Rs 128 crore EBITDA recorded in the same quarter previous year. This has led to some serious concerns on the oil & gas segment of Reliance.

A few days back, Mukesh Ambani displayed his desire to spearhead India’s fight towards renewable energy. How often have you heard a company dealing with crude oil talking about a move to renewable energy at such a massive scale? Mukesh Ambani insisted that shifting towards renewable energy does not mean leaving the oil & gas business completely. But, is it so easy to make such a large shift? You can read more about this here. 

Halloween Horror Show! Why Did Reliance Fall?

Halloween is celebrated each year on October 31. Seems like it came on 2nd November for Reliance. You can find how the market performed today here. Reliance’s share price fell by a massive 8.69% to close at Rs 1876. This fall of Rs 178.50 in one day took Reliance on their lowest share price in the past three months. What were the reasons behind such a fall that eroded more than Rs 1 lakh crore of market capitalization?

We can understand three possible reasons behind this. Firstly, negative sentiments due to holding off of Reliance-Future Retail deal. The big bull Amazon has insisted that the deal between the two cannot go ahead as it violates Future’s commitment towards them. Read about this war here. The deal with Future group has huge importance for Reliance to take the next step in the retail segment. If this deal collapses, the speed of growth for Reliance Retail in that sector will be hugely affected.

Secondly, unsatisfactory results. Reliance’s oil business is really struggling due to COVID-19. Demand for oil is struggling to revive. Yesterday, the UK government announced that the second wave of infections has been increasing rapidly. To contain the spread, the UK government has declared another four-week lockdown. Before them, Spain and France have also announced lockdowns in their country. With an increase in cases worldwide and no vaccine as of now, the oil & gas companies may find themselves in a very bad situation once again. 

Thirdly, profit booking kicking in. Reliance has been on a relentless upside rally from the past 7 months. With every major announcement of investment, Reliance has gone up rapidly. But this pattern stopped in the previous month when major investments in the Retail segment failed to boost up the price. Thus, there might be a feeling among the investors that Reliance won’t be going up so easily now.

With a subdued performance in a few segments this quarter, people might have just booked their profits rather than hoping that Mukesh Ambani can turn around again. Also, Rs 2,000, being a round number, was a very solid support for investors. As soon as the stock went below it, many stop losses would have been triggered which created a panic among the shareholders to sell the stock. 

There are also rumours floating around about Ambani’s health. While this has not been verified, stock prices may crash further if this is verified. It will be very interesting to see where Reliance goes from here. Any negative news will be forcing another big fall in its share price. But can Mukesh Ambani do his magic again?

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Market News

Reliance Jio seeks spectrum for 5G trials, plans to sell overseas

Reliance Jio has sought spectrum in certain frequencies from the Department of Telecom for holding trials of the latest 5G technology, according to sources. The company’s wholly-owned US-based subsidiary Radisys has already started selling some of the 5G solutions to foreign companies.

Reliance Jio on July 17 requested for 800 megahertz of frequencies in the 26 gigahertz (GHz) and 24 GHz band as well as 100 Mhz in 3.5 GHz band for running field trials in “urban centres like Delhi and Mumbai“.

The company has sought spectrum frequencies between 26.5 – 29.5 GHz and 24.25-27.5 GHz band. The auction for these high-frequency bands is expected to be held next year. UN body International Telecommunication Union approved 5G standards for 26 gigahertz band in November last year while the standards for other bands are yet to be decided.

In its pitch for starting trials in higher spectrum band, Jio in the letter has said that the US, South Korea, Japan etc have started working in 28 GHz band and some other countries in 26 GHz band and therefore it wants to run trials of its 5G technology before selling it abroad.

In the 43rd annual general meeting, Reliance Industries Limited Chairman Mukesh Ambani had said that Jio has designed and developed a complete 5G solution from scratch. They also want trails in these bands should start in India to make India “Aatmanirbhar“.

In conclusion, Reliance Jio has made it clear that it is just starting out and will soon cater to domestic and foreign markets through its aggressive approach be it towards fundraising in order to clear debt or introducing cutting edge technology like 5G to emerging markets.

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Editorial

The entire Telecom AGR saga

agr

What is AGR- Adjusted Gross Revenue?

Whenever a company makes money, they are liable to pay tax to the government. Telecom companies charge Interconnect Usage Charge (IUC) but it is not a part of the income which stays with them. They have to pass it to different operators. Thus, this charge only inflates their total revenue. It won’t be fair if the government taxes a telecom company on this inflated number. Hence, the total gross revenue is adjusted downwards which is known as Adjusted Gross Revenue.

Where it All Began

After 1994, telecom companies were allowed to operate in a fixed license system which was very expensive. From 1999, the government allowed the telcos to migrate from the expensive license-based model to the revenue-sharing model. This model helped the company to share a part of what they earned rather than paying out a high fixed amount. The payment under the new model was divided into two parts annual license fee (LF) and spectrum usage charges (SUC). The former would be 8% of AGR and the latter would be 3%-5% of AGR.


This AGR was the base of the argument which started in 2005 when the Cellular Operators Association of India (COAI) challenged the definition of AGR calculation that was followed by the government. This leads us to dive deep into the definition given by both the parties and the dispute which continued for a decade and a half.

The “AGR Definition” Dispute

The telecom companies believe that the government should be charging tax from the revenue generated only from the core business and not from other businesses. For example, a telecom company like Airtel will generate revenue not only by providing services in the telecom area but also by selling off its assets or by investing in equities or bonds.

Now, the DoT says that AGR includes the revenue generated by the company as a whole and not only from its core business. They believe that companies are earning revenue only because they are allowed to do business in the country. Hence, they are liable to pay taxes on their total AGR, no matter if it is coming from the company’s core business or the non-core business. 

We bring you a timeline of things that have shaped this whole saga –

October 24, 2019

The judgment day. After 14 years of indecision and uncertainty, the Supreme Court of India announced their mammoth verdict. The SC decided to widen the definition of AGR and include revenues coming for non-core items for taxation. The bombshell was that the apex court has asked the companies to pay all their dues amassing Rs 1.19 lakh crore by 23rd January 2020.

January 23, 2020

Vodafone Idea, Bharti Airtel and others miss the deadline citing poor financial health of their companies. The government also asked DoT not to take any action against the defaulting on payments.

February 14, 2020

As expected, the red-hot SC blasted the Centre, DoT and the telecom companies for not respecting their orders. The apex court declared March 17 as the new deadline for the companies to clear all their AGR dues. 

March 18, 2020

In the past few weeks, telecom companies started clearing their dues but only partially. Supreme Court was asked to give 20 years for companies to clear their AGR dues. The apex court fiercely rejected the idea and also declared that companies won’t be allowed to self-assess their dues. 

June 18, 2020

Supreme Court cooled its stance a tad bit. They asked the companies to present a detailed plan of action as to how they intend to clear their dues. This plan of action should consist of the years that the companies would be asking for and the guarantees they will be giving in the meantime. No allowance for staggered payment would be issued if companies fail to provide adequate bank guarantees and a proper roadmap for payment in upcoming years. 

July 20, 2020

The Supreme Court reserved its orders for the AGR payment timeline. They reiterated that the calculation done by DoT is final and binding. Vodafone accepted the dues levied on them but requested 15 years to pay back the dues. Their counsel stated that the company is in “deep waters”. They even asked the government to retain the Rs 8,000 crore worth of GST refunds for this year.

With all this, the Supreme Court voiced their concern on how they can “rely” on a company to pay their dues in future if they already are in shambles. The next hearing is scheduled on 10th August 2020.

AGR Dues for Vodafone Idea: 

Dues Outstanding: Rs 58,254 crore

Dues Paid: Rs 7,854 crores 

Balance Due: 50,400 crore

Vodafone’s counsel told the Supreme Court that the company is “barely afloat”. If the apex body forces the company for an upfront payment, they will be forced to shut down their operations in India which will directly impact over 1100 employees.

AGR Dues for Bharti Airtel:

Dues Outstanding: Rs 43,980 crore

Dues Paid: Rs 18,004 crore 

Balance Due: Rs 25,976 crore

Airtel has paid 60% of the total dues paid by the telecom companies till now. Several analysts believe that Airtel is in a much better financial condition when compared to Vodafone and will be able to pay its dues soon. Doubts remain on the survival of Vodafone Idea.

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Market News

Telecom AGR hearing on 20th July – Vodafone Idea in Focus

Vodafone Idea

The AGR saga continues and its next hearing will be on 30th July. This story of Adjusted Gross Revenue from telecom sector has been continuing for the past 16 years.

Supreme Court’s order of October 2019, widened the definition of AGR to include non-core items. Companies like Airtel, Vodafone and others missed the apex court’s deadline of 23rd January to make payments.

After SC’s decision, the Department of Telecommunication estimated that Vodafone Idea owes Rs 58,254 crore and Bharti Airtel owes Rs 43,980 crore. Out of this amount, Vodafone Idea and Bharti Airtel have paid Rs 6,354 crore and Rs 18,004 crore respectively.

Both the telecom companies have stated that, currently, they are not in a position to pay statutory dues anymore. Therefore, they have asked for a period of 20 years and offered to pay in a staggered form during that timeline. Supreme Court didn’t accept this plan but have asked the telecoms to present a detailed roadmap of the payment timeline.

Vodafone Idea has voiced their concerns with the decision. They have already warned that they will be forced to shut their shops in the country if asked to pay their dues without being in instalments.

Telecom experts believe that while Bharti Airtel can manage to clear the dues, Vodafone Idea’s financial position looks uncertain.