Shares of Bharti Airtel and Idea Cellular tanked 9 per cent each intraday today after Reliance Industries launched the much-awaited Reliance Jio and announced (disruptive) plans.
Analysts continue to maintain their negative stance on the sector and most of them have hold recommendation on the stocks.
“Pricing would be under pressure for existing players. Competitive intensity will rise not only on pricing but also on services (mainly non social media content),” said TanuSharma, associate director at India Ratings & Research.
Sandip Agarwal, analyst at Edelweiss Securities, echoes a similar view. “Telcos are investing massively in physical infrastructure and spectrum to cater to the anticipated data surge. Ergo, faltering data volume growth will trigger lower capacity utilisation, heightening competitive intensity.”
Slowdown in smartphone shipments in the last two consecutive quarters is already a concern. IDC reported a meagre 3.8 per cent year-on-year growth in smartphone shipments in June 2016 quarter compared with 5.4 per cent in March 2016 quarter and 21.4 per cent in the whole of in FY16.
“The poor Q4FY16 shipments translated into the telecom industry clocking tepid data growth in Q1FY17,” Agarwal of Edelweiss said.
But he also pointed out that slowdown in data in revenue growth for the existing players in June 2016 is likely to reverse due to strong monsoon, festive season and scale launch of 4G by RJio triggering handset upgrades but he still prefers to be vigilant of the emerging trend.
Further Sanjesh Jain, analyst at ICICI Securities, believes that the market and investors are under-appreciating the benefit accruing from consolidation that could off-set the impact of slower industry revenue growth, at least partially.
“For instance, the likely event of Telenor exiting India would imply Rs 3,400 crore adjusted gross revenue up for grab. We believe the top three operators (Bharti, Idea and Vodafone) would be major beneficiaries. Also, revenue is available due to winding up of CDMA services in near-term,” he pointed out.
Telenor India operates in seven circles which contribute 36 per cent to industry revenue. Unlike most analysts, Jain ‘maintains’ a buy recommendation on Bharti and Idea.