Reliance Jio's price war may end, know why

Vodafone Idea (VIL) and Bharti Airtel's mobile service revenue in India probably increased sequentially for the first time in 11 quarters in the three months ending in March, driven by minimum recharge plans and as more users opted for higher- priced voice and data packages, Vodafone Idea analysts, Bharti Airtel, Reliance Jio Infocomm, price war, minimum recharge plans, said.

However, it is likely that Reliance Jio Infocomm, which interrupted the sector when it began in September 2016, will continue to outperform its rivals, registering strong growth in net earnings and revenues, driven by the strong incorporation of customers. The price war triggered by the entry of Jio seems to be diminishing, possibly signalling the return of stability in the sector.

"Growth is set to return for Airtel and VIL as tariffs have largely stabilised," brokerage BNP Paribas said in a note seen by ET. It said the introduction of minimum recharge plans (to keep services active) will likely increase revenues and result in better monetization.

Bank of America-Merrill Lynch estimates that Airtel's mobile revenues in India in the fourth fiscal quarter will increase by 4% in the last three months, while BNP forecasts that VIL's mobile revenue will increase by 1%.

Airtel May Post the First Loss in Almost 16 Years

The entrance of Jio with free voice calls and very cheap data forced the operators to equalize the tariffs to protect their user base, which harmed their income and profits. As a result, the smaller telecom companies closed down and Vodafone India merged with Idea Cellular, which reduced the field to three private operators: Jio, Airtel and VIL.

Analysts now say that the worst seems to be over.

Bank of America-Merrill Lynch expects Airtel's average revenue per user (ARPU), a key performance metric, to increase over 21% to Rs 126. BNP estimates that VIL's ARPU will increase by 19% to Rs 106. Both Telecom companies introduced their minimum recharge plans in October, with the aim of eliminating non-revenue- generating customers and boost the ARPU.

BNP expects Airtel and VIL each to have more than 9-10 million mobile broadband users in the quarter. It said that the growth of VIL data volume is about to accelerate, driven by the rapid integration of networks after the merger.

The brokerages said Jio, led by Mukesh Ambani, will likely report its sixth successive quarterly profit as Airtel and VIL continue to suffer losses for their mobile businesses in India. BofAML said Jio's net profit would rise 64% on-year to Rs 840 million, driven by the net addition of an estimated 29.5 million users.

The US brokerage estimates that Jio's revenues will grow 57% on year and 8% sequentially to Rs 11,210 crore, although monthly ARPU could fall 2% on-quarter to Rs 127, slightly ahead of Airtel.

Airtel is expected to report a consolidated net loss in the range of Rs 599 crore to Rs 1,300 crore, the first time in almost 16 years, with still low prices, higher costs and a reduction of its non-mobile businesses.

CLSA estimates that Airtel's home broadband and DTH business will "see a 3% decrease in revenues in the quarter" due to competition and a new regulatory order that allows consumers to select and pay only channels that they want to watch.

The wide variation in Airtel's loss estimates is due to the possibility that the telecom companies will be affected by furthermore depreciation and finance charges, analysts said.

India's second largest telecom company obtained a net profit of Rs 86 in the third fiscal quarter, helped by single gains. During that quarter, revenues from its mobile service in India fell below Jio's for the first time and also recorded losses.

For January-March, revenues from Airtel's India mobile service, estimated at Rs 10,289-10,342 crore, will be still lower than Jio's. The consolidated revenue is expected to be in the range of Rs 20,506-20,930 crore. Airtel offers mobile services in 15 African countries also.

BNP analysts predict a sequential increase of 1% in revenues from VIL to Rs 11,882.4 crore.

They expect that the next VIL and Airtel rights releases of Rs 25,000 crore each will be fully subscribed "in view of the promoter commitment and the discount being offered", which would alleviate debt concerns.