A report by research firm SBICap says that Airtel's target $100 bn revenue target by FY24/FY25 (assuming an average realisation per user of Rs 300 in its 5 years) is difficult unless the company 1) significantly increases tariffs, 2) increases digital presence, 3) raises capital and monetizes assets.

It also said that with Jio's debt reduction drive, Jio is better placed to penetrate the 5G market and could capture a 50 percent market share with Airtel's share expected to be in the range of 30-35 percent.

Sunil Mittal and the Airtel management had indicated an ARPU of Rs 100 at the lower level and Rs 450 at a higher level. SBICap assumes Rs 300 as the blended target. The management in its results for the fourth quarter of FY20 (January-March) had also outlined an eventual target of Rs 300.

"It is not very easy to assume ARPUs reaching Rs 300 unless the market structure folds to two players soon, and both remaining players monetize the consolidation by significantly raising prices. The other possibility is prices for data and voice services do not rise but ARPUs for Jio still increase as it monetizes digital services. Such a scenario would suggest Bharti may have to step up incremental revenues from possible digital services to plug the gap. It could do this on its own or get into strategic partnership with a global tech player to achieve the same," said the report.

"Interestingly, the ARPU narrative of Rs 200/300 was emphasized eight times in the 3Q and 4Q earnings calls and management has been empathetic about Rs 300 ARPU and 15 percent ROCE. Now if we were to plug a Rs 300

ARPU assumption in our model, Bharti would reach a market cap of USD 100bn in 5 years (assuming the rest of the business EBITDA grows by a 6 percent CAGR). The entry plans for 4G are at Rs 200 and if one were to assume all subscribers to be 4G subscribers, ARPU could reach Rs 200/250; but that’s a big assumption as only 48 percent of total subs for Bharti are 4G, and the company may be at least 30 months away from such a possibility, in our view;" it added.

Jio Vs Bharti: Jio at an advantage in the 5G game with a $20-$25 billion war chest

The report also outlines that the cash balance and debt figures of Bharti Airtel and Reliance Jio clearly indicate that Jio is better placed to gain higher market share and make investments in digital and 5G with an expected war chest of $20 to $25 bn.

"Bharti with a FY20 net debt/EBITDA of 3x is not well placed, compared to Jio (debt-free) to make substantial investments in 5G or new digital initiatives over the next couple of years. Our base case suggests that Bharti may bring down its leverage to 1x net debt/ETBIDA ( after considering investments in 4G), with the key assumption being that mobile ARPUs grow at a CAGR of 13 percent over the next three years (FY23 exit ARPUs at INR 194). Separately, RIL is net debt-free at a consolidated level with the recent stake sale in Jio and proceeds from rights issue. Jio, with a 14 percent ARPU CAGR over the next 3 years (SSL estimate) is seen generating a cumulative EBITDA of $20 bn, and even assuming 40 percent of this EBITDA getting to 4G/FTTH investments, it still leaves Jio with $10-11 billion for 5G and digital investments.

Incrementally, the combination of IPO and ability to raise debt allows Jio to raise additional money; potential digital and 5G war chest is seen in excess of $20-25 bn. With cumulative investments in excess of $ 50 bn, Jio has claimed one third revenue market share. Incremental potential investments of $ 15-20 bn suggests that Jio could well meet its ambition of attaining over 50 percent market share. Jio getting to a 50 percent market share may not be an issue with Bharti-Airtel as it won’t mind commanding 30-35 percent share, depending on where Voda-Idea stabilizes. Bharti must address its balance sheet first and consider selling a stake in its tower assets, bringing down stake in Africa business, and raising additional equity;" the report said.

(Disclosure: Network18, the parent company of CNBCTV18.com, is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.)

First Published:Jul 14, 2020 1:08 PM IST