Airtel consolidates its position to defend against Reliance Jio

India's second-largest telecom operator Bharti Airtel reported a 21 per cent growth in revenue at Rs 26,853.6 crore in the first quarter of FY22. The telco registered a sharp decline of 63 per cent in sequential net profit to Rs 283.5 crore. However, all the key businesses witnessed improvement over the previous quarter.

In his address to investors, Airtel's CEO for India and South Asia Gopal Vittal said that at a time when wireless revenue was impacted by the Covid-led lockdown and the consequent financial squeeze amongst many of the relatively lower income consumers, the rest of the portfolio delivered strongly. "This shows you the resilience and strength of our portfolio," he said.

Airtel has indeed been doing well for some quarters now on the back of its huge investments in networks, homes and enterprises businesses. It has not only grown its subscriber base but also increased its APRU (average revenue per user) on a sequential basis.

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Airtel's 4G subsribers nearly doubled from 95 million in June 2019 to 184 million in June 2021. At the same time, the non-4G subscribers witnessed a sharp decline from 25 million in June 2019 to 9 million in June 2021. Since 4G subscribers typically pay more than non-4G subscribers, there's a direct positive impact on the APRU, which is the most important metric to assess the financial situation of a telco.

Currently, Airtel's ARPU is the highest in the industry at Rs 146. In comparison, Jio's ARPU is at Rs 138.4 and Vodafone Idea's at Rs 107 (in Q4FY21).

"Airtel has made large investments in its network over the last year, increasing its total sites by 12 per cent and mobile BTS (base stations) by 30 per cent. It also enhanced its spectrum holdings in the recently-concluded auction. This helped drive strong 4G customer additions and its data throughput grew 49 per cent year-on-year. Data usage per customer was at an all-time high of 19 GB (gigabits) versus 16.8 GB in 4QFY21," analysts at BNP Paribas said in a recent report.

Recently, Airtel hiked minimum prepaid tariffs for its low-end customers (Rs 79 now from Rs 49 earlier), and minimum charges for corporate postpaid customers (from Rs 199 to Rs 299). Initially, the telco was reluctant to make the first move in raising tariffs, but it finally took the plunge that is expected to push up its ARPU. This is the first tariff hike in the industry after all three telcos decided to raise tariffs in December 2019.

"We expect an uptick in ARPU in the coming quarters as a result of recent tariff changes, continued upgrade from 2G to 4G, and a potential tariff hike in the prepaid smartphone segment," said a Goldman Sachs report.

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"Airtel remains well positioned to gain disproportionate share of Vodafone Ideas' (VIL) post-paid and 2G subscribers as VIL's financial heath is deteriorating," the BNP Paribas report said.

On the back of subscriber growth, Airtel (and Jio too) has clinched a fair bit of revenue market share from Vodafone Idea. At the end of June, Airtel's revenue market share stood at an all-time high of 35.6 per cent.

Two emerging segments -- homes and enterprises -- have contributed significantly to Airtel's growth in the recent quarters. The home broadband vertical saw its highest-ever subscriber addition of 2,85,000 during the first quarter of FY22. The reach of this segment was expanded further by 96 cities to take the total count to 387.

Meanwhile, enterprises segment also delivered another quarter of high-single digit revenue growth over the previous year. As per Frost and Sullivan, Airtel's share has now moved up to 31.4 per cent from 24.4 per cent a year ago in the enterprise data market.

"Airtel has grown geographical reach of its broadband business 3.3 times over last 12 months using its partnership model with LCOs (local cable operators) for accelerated expansion. This is in line with our expectations of accelerated growth in fixed broadband penetration in India led by Jio and Airtel," said a report by Credit Suisse.

While the second wave of COVID-19 had an impact on Airtel's overall subscriber additions, the strong recovery in the June-July has to sustain for the growth momentum to continue.

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