Jio vs Airtel vs Vodafone Idea - Subscriber Numbers upto July'19

Every month we have been reading reports of Reliance Jio adding a few million subscribers and Airtel + Vodafone Idea losing a few million of theirs. July'19 is no different. Reliance Jio maintained it's subscribers momentum with addition of another 8.5 million subscribers in July'19, taking it's total to almost 340 million. Vodafone Idea lost a smaller number of users compared to the previous 2 months. It's total subscriber base now stands at 380 million, down by 3.4 million. Airtel has now included Tata Tele's subscribers in it's count. Tata Tele had about 11.5 million subscribers in June'19. But Airtel+Tata Tele's subscriber count has jumped from 320.3 million in June'19 to 328.5 million in July'19. That means Airtel also lost nearly 3.2 million subscribers during July'19.

All the three operators have seen their VLR % erode during July'19. Starting with Airtel, it's own VLR % at the end of June'19 was 98.5%, which dropped to 94.95% in July'19. This is mainly due to addition of Tata Tele's subscribers in it's total count. Most of these Tata Tele's subscribers were already using Airtel's network on Roaming. Hence this had helped boost Airtel's VLR % for the previous few months, as can be seen from the table alongside. Airtel's VLR base has dropped from 315.5 million to 311.9 million, i.e. a drop of 3.6 million active users. The same at the end of January'19 was 331.2 million. That means Airtel has lost close to 16 million active users during these 6 months.

Looking at Vodafone Idea, it is already tainted to be the worst performing Telecom operator in terms of subscriber & revenue growth in the recent months. The effects of large-scale Network Integration activity across several circles has had a severe impact on Vodafone Idea's active subscribers count post March'19. At the end of March'19, Vodafone Idea's Total subscribers were 395 million, which is now down to 380 million, i.e. a loss of just 15 million users in 4 months time. Nothing alarming. But during the same period, it's VLR % has dropped from 93.3% to 81.9%, in a staggered manner. This means it's active subscriber count has dropped from 368 million to 311 million over those 4 months, i.e. a loss of 57 million, which is large figure. An average of over 14 million a month!! This is substantially more than what Jio is adding every month.

Over the last month or so, we have seen several announcements from Vodafone Idea about launch of TurboNet 4G services in more & more cities across the country. TurboNet 4G is the brand they have adopted for announcing the launch of Integrated network for Vodafone & Idea combined. TurboNet 4G also represents the launch of a network which is expected to offer wider coverage & much larger capacity than before, with the help of the largest spectrum pool amongst all operators in India. This should help improve adoption of 4G services amongst Vodafone & Idea users and also attract users from rival networks. We may not see much of it's effect in August numbers, but I am sure we will start seeing a boost in numbers for Vodafone Idea from September'19 onwards. Apart from launch of TurboNet 4G, Vodafone Idea has also introduced lower denomination recharge options for users to remain active on the network.

Coming to Reliance Jio, it's monthly subscriber addition numbers have been very consistent. It seems as if the company is despatching only a limited number of simcards / Jio Phones every month. For the 6 months between January to July'19, Jio's Total subscriber base went up from 289 million to 340 million, i.e. 51 million new additions translating into 8.5 million every month. That is precisely the number they are adding every month. Even their VLR % is steady around the 83-84% mark. Looks like everything is working in a very measured fashion. Sometimes even raises a doubt in my mind whether these are genuine numbers or manufactured ones.

Airtel & Vodafone Idea are now neck-to-neck in terms of active subscribers. It will be an interesting race from September'19 onwards. Airtel might inch ahead in August as Vodafone Idea's TurboNet 4G marketing started only in the latter half of August. In about 4 to 5 months time, Jio will close the gap between it's Active base numbers and the other two, which currently stands at about 29 million. And most probably Jio will just zoom past both of them. Both Airtel & Vodafone Idea are unlikely to offer something like the Jio Phone, which is what is pulling major numbers for Reliance Jio since the last couple of years. Both Airtel & Vodafone Idea will prefer to expand their 4G network coverage to get closer to that offered by Jio currently and target the Smartphone users to upgrade to 4G or pull a few dis-satisfied users from Jio or BSNL.

That brings us to the comparison of Wireless Broadband numbers of the 3 operators. Jio's entire subscriber base is counted as Broadband user base as it's 4G-only network. In case of both Airtel & Vodafone Idea, it comprises of 4G and 3G subscribers. The 3G subscriber base for both operators is rapidly falling. Both have less than 25 million 3G users on their Networks as of July'19. By the end of this year, both operators are expected to shut down 3G networks as the same spectrum can be used to add to their 4G capacity. So all these 40 to 50 million 3G users will be forced to upgrade their handsets and start availing 4G services over the next 3 to 6 months.

Airtel's Wireless Broadband user base has been steadily increasing over the last 6 months. It went from 110 million in January'19 to over 121 million in July'19, i.e. at a pace of almost 2 million a month. On the other hand, Vodafone Idea had a tough time trying to maintain it's wireless broadband user numbers between February'19 to May'19, when it lost about 1.25 million users. It has seen some increase for the last 2 months of June & July'19. I am pretty sure that this will pick up pace from September'19 onwards & we could see Vodafone Idea adding 2 million+ Wireless Broadband users every month. This race between Airtel and Vodafone Idea will get very interesting by the end of 2019. I am excited to see which one of the two proves to be a bigger challenger to Jio in the year 2020. So far we all know that Airtel has performed better than Vodafone Idea. But there are reasons for the same. As Vodafone Idea starts pushing it's upgraded network services through formal advertisement channels, we should see the company numbers start improving.

Q1FY20 Telecom AGR update: BSNL is on a surprise comeback

TRAI announced the Q1FY20 Financial Numbers for all Telecom operators a couple of days back. I have considered the Adjusted Gross Revenue (AGR) numbers for the Top-4 Telecom operators in my analysis. For Q3FY19, Vodafone Idea was No.1 (31.4% Market-share), Bharti Airtel was No.2 (30.7%), Reliance Jio was No.3 (29.2%) and BSNL+MTNL was No.4 (8.7%). Things have changed substantially over the last 2 quarters.

Vodafone Idea was expected to lose some market share as it is undertaking a massive Network Integration exercise since November'2018. This has resulted in Vodafone Idea slipping to No.3 position with 27.2% market share in Q1FY20. Bharti Airtel had lost it's No.2 position during Q4FY19 due to some one-off adjustments. It has now regained the No.2 position with a market share of 29.6%. Reliance Jio has jumped to No.1 position in Q1FY20 with a market share of 30.2%. But all these developments were more or less expected. What is surprising is the fact that BSNL seems to be on a strong comeback. BSNL+MTNL combine had reported an AGR of just Rs.2864 crores in Q3FY19, which jumped to Rs.3546 crores in Q4FY19, which was a Q-o-Q jump of about 24%. BSNL+MTNL combine has managed to post an even stronger Q-o-Q growth in Q1FY20 to improve it's AGR to Rs.4703 crores, which is a jump of almost 33%. This strong growth has resulted in BSNL+MTNL combine's market share improving substantially to 13% in Q1FY20.

If we compare the Q1FY20 numbers with Q3FY19 numbers, Bharti Airtel has managed to increase it's AGR by 5.5%, but lost market share by 1.1%. Vodafone Idea has seen it's AGR dip by 5.5%, resulting in it's market share dropping by 4.2%. Reliance Jio has reported an AGR increase of 13% and a market share increase of 1%. On the other hand, BSNL+MTNL combine has managed to increase it's AGR by 64%, resulting in it's market share increasing by 4.3%. BSNL has managed to post such strong growth entirely on it's own since MTNL's performance continues to be disappointing. It will be interesting to see if BSNL manages to continue to post healthy positive growth in the coming quarters. Over the last few months we have been reading many reports of BSNL delaying salary payments to it's staff due to paucity of funds. Government of India is seriously considering some major boost to BSNL, including handing over of MTNL's operations to BSNL. If this happens soon, BSNL will be able to improve it's services & presence in the 2 important Metro circles of Delhi & Mumbai. This should help to further improve BSNL's quarterly numbers. Let's wait & watch how things pan out in the coming quarters for BSNL.

Coming to Vodafone Idea, the company is expected to improve it's performance from Q2FY20 onwards. It's Network Integration work has progressed well over the previous 2 quarters and the company continues to rapidly Integrate the networks in more & more towers in various circles. Very soon we will see the company increasing it's marketing efforts to spread the word of it's Stronger & Larger Network in several cities across the country. Initially this marketing effort will be more localised, limited to only those cities where the Network Integration work is over and the capacity has been increased. As the company gets closer to achieving the Network Integration work in over 80-85% of it's towers across the country, then we will see Vodafone Idea pushing for large scale advertisements across various mediums. I am expecting this to start before the end of December'2019.

Bharti Airtel & Reliance Jio continue to aggressively market their services across the country & also continue to incrementally increase their coverage & capacity. While Bharti Airtel has started switching off it's 3G network from some locations and utilise that spectrum for 4G service, Reliance Jio is simultaneously working on rolling out it's wireline services on a commercial basis next month. This might reduce some of it's aggression on the wireless front and we could see some slow down in subscriber addition on Reliance Jio's Wireless network in the coming months.

The next data point awaited is the Subscribers data for the month of July'19, which should be released in the 3rd week of next month.

Do Share your thoughts on this report or Views on the points discussed. Awaiting your Comments.

Green-shoots for Vodafone Idea in latest VLR subscribers Data

TRAI recently published the Subscriber base Report for all Telecom operators in India for the month of June'19. While it was widely reported that Airtel & Vodafone-Idea together lost over 4 million subscribers and Jio gained over 8 million subscribers in June'19, there is a lot more that one needs to know. Vodafone Idea alone lost 4.1 million subscribers in June'19, while Airtel's loss was negligible at less than 30,000 subscribers.

The above numbers are for Gross Subscriber base. I don't give too much importance to the Gross Subscriber numbers. The more important numbers to look at are the VLR (Visitor Location Register) subscriber numbers, i.e. the subscribers which were actually Active on the operator's network. This number is what matters more as these Active users are the ones that will generate Traffic as well as Revenues for the company.

Vodafone Idea has been consistently losing VLR subscribers ever since their merger took place in August'18. From over 400 million VLR subscribers in September'18, it is down to 322 million in June'19. A major chunck of this number will be the subscribers who were holding sim cards of both operators before the merger. Another larger number of subscribers leaving the network will be those who were using it as a Secondary sim, only for Income calls, and were recently forced to do minimum recharge of Rs.35 every 28 days to continue availing service.

Till March'19, Vodafone Idea's overall VLR % was over 93, which is a very healthy figure and also in the normal range for both Vodafone India and Idea Cellular, before merger. But over the last 3 months, i.e. by June'19, it has dropped to just 84%. Apart from the above 2 reasons, this drop in VLR % could also be due to the rapid Network Integration work that is going on at hundreds of towers at any given point. Service disruption for some time for several subscribers at so many locations will also affect the VLR numbers for the operator.

If we look at the overall change in VLR numbers for Vodafone Idea since March'19, the operator lost 9.1 mn subscribers in March'19, another 26 million in April'19, 8.6 million in May'19 and 11.2 million in June'19. While these numbers clearly suggest that Vodafone Idea continues to lose VLR subscribers at a rapid pace, there are lot of things worth noting when we look at Circle-wise VLR subscriber number changes. Last night I sat down to note down the number of circles that are losing or gaining VLR subscribers, in different Ranges like 0 to 0.2 million, 0.2 to 0.5 million, 0.5 to 1 million, 1 to 2 million and >2 million. Some very interesting developments can be noted from this Data that I have collated.

Vodafone Idea had reported a loss of VLR subscribers in all 22 circles for the months of March and April'19. Vodafone Idea had lost over 26 million VLR subscribers in April'19, when 11 circles had reported a loss of over 1 million users each. In May'19, things were much better with just 1 circle reporting a loss of over 1 million users and 1 circle even reported a gain of VLR users. The overall loss of VLR users was moderated to 8.6 million in May'19. But the number is again higher at 11.2 million in June'19. But the culprits are just 2 circles: Bihar (4 mn loss) and Andhra Pradesh (2.2 million loss). Apart from this, things seem to be improving for Vodafone Idea as a total of 6 circles have reported a Gain of VLR users during June'19. All these 6 circles (Himachal Pradesh, Kerala, Madhya Pradesh, Mumbai, Punjab and UP (West)) have reported a decent improvement in VLR %, resulting in a gain of VLR subscribers even when their Gross Subscribers numbers are down. What this suggests is that as Vodafone Idea's network integration work results in an improvement in Network's performance in terms of Coverage, Capacity & Speed, we could see more & more circles reporting positive change in VLR % and hence a gain of VLR users, in the coming months.

My take is that the worst in terms of loss of VLR subscribers is behind for Vodafone Idea. Things are set to improve in the coming months. In fact these are very interesting times for the company as we could start seeing first signs of benefits of their Integrated large-capacity network sometime soon, possibly from September'19 onwards. I will keep updating this Data as and when TRAI publishes the Subscriber numbers for every passing month.

Do Share your thoughts on this report or Views on the points discussed. Awaiting your Comments.

How bad is Vodafone Idea's business doing?

Vodafone Idea Ltd. announced it's Q1FY20 Results about 10 days ago. Before the announcement, it's share price was trading close to Rs.10 levels, resulting in a Market Cap of just about Rs.28,000 crores. This in itself was ridiculous valuations for a company that still is India's No.1 or 2 mobile operator with over 300 million active users.

After the result announcement, Vodafone Idea's share price has crashed and is now close to Rs.5 levels!! That means it's Market Cap is just about Rs.15,000 crores now. This is an even super-ridiculous valuation. Now the big question is: Are things really so bad with the business of Vodafone Idea? Or is the market writing-off it's chances of survival too early?

Let's put some things in perspective. In 2017, when Vodafone India and Idea Cellular announced their decision to merge, they were the No.2 and No.3 mobile operators in the country, with each having a subscriber base of between 180 to 200 million. By the time the merger was approved in July-August 2018, they together had over 400 million subscribers. It was widely expected at that point that atleast 20 to 30% of their subscribers could be common, holding sim cards of both Vodafone & Idea. That means about 40 to 60 million subscribers of Vodafone, could also be having Idea sim card in their Dual-sim phones. Hence it was obviously expected that most of these subscribers will stop using either 1 of the two sim cards after the merger of the two operators.

Now look at the table alongside. The merger was formally concluded on 31st August'2018. By the end of that quarter, it's VLR (active) user base stood at just under 403 million, which started dropping at a faster and faster pace over the next 3 quarters and now stands at 322.4 million. That means Vodafone Idea has seen a drop of nearly 20% of it's active users base, most of it after Q3FY19. This should have resulted in a significant drop in the company's revenues. But if you look at the Total Income figures from Q3FY19 onwards, there has been barely a drop of about 3% till now.

What does this indicate? It clearly indicates that most of the 20% users who exited the Vodafone Idea network during the last 3 quarters, were not generating any revenues for the company. Isn't this good that the free-loaders have been removed from the network?

Now let's look at the other developments: Post the merger getting officially effective, the company had a massive task at hand, which was to integrate it's Networks, it's Administrative offices, it's Retail units, it's Staff, it's IT Systems, etc. After a couple of months of planning, the integration activities must have started sometime in November or December'2018. The biggest one of these to Integrate the Network sites & combining the Spectrum resources. This alone will take about 18 to 24 months to complete as they will have to physically do the integration activities on about 2,00,000 towers.

During this Network integration work, the Quality of Service certainly must be getting affected in regions where it is being undertaken at different points of time. Hence the company has not been aggressively marketing it's services to attract newer users on it's network. It is just trying to hold on to it's revenue-generating users. And I think it is doing a very fine job with it as it's Revenues are pretty stable even during this massive Network integration activities.

Once the company will have finished integrating & upgrading the networks in most of the Urban areas or high-population regions across the country, I am expecting the company to get lot more aggressive with it's marketing. At that time the company will have lot more capacity & coverage to offer to all it's old & new users. I think that point is still a couple of quarters away. Possibly during Q3FY20 or Q4FY20 is when Vodafone Idea is expected to get aggressive with it's marketing efforts.

Even with limited marketing efforts, Vodafone Idea has managed to increase it's 4G user base from 66 million to 85 million over the last 3 quarters. It's pace of growth is certainly slower than that of Airtel, but we cannot ignore the fact that Airtel is going full throttle with it's advertising & marketing efforts, while Vodafone Idea has curtailed the same till it's network is ready to offer better coverage & quality of service. The Total Data Volume on the network is increasing at a pace faster than the increase in number of 4G subscribers, reflecting the fact that each user is now consuming higher quantity of Data and the network is also able to offer the same. In the coming quarters, when the 4G user base is set to grow at a faster pace, we can expect to see the Data Volumes to grow even faster. Voice Minutes on the other hand are reporting a de-growth, mainly because of exit of many voice-only and that too incoming-only users from the network. The average voice usage per user is actually reporting an increase.

Going forward, I am expecting the consistent drop in VLR base, Quarter after quarter, since the last few quarters, to start reversing, possibly from Q3FY20 onwards. Even in Q2FY20, the drop in VLR base will be very small. Once the VLR numbers get steady, Vodafone Idea will start reporting some decent growth in it's Revenues on the back of increase in proportion of 4G users. Vodafone Idea's EBITDA margin currently is about 15 to 17%. I am expecting this to improve to about 22 to 25% in the next few quarters, mainly because of reduction of operating costs due to closure of more & more duplicate network sites of erstwhile Vodafone & Idea. By the end of this fiscal, most of the one-time costs in terms of compensations & penalties towards early termination of rental agreements with various Tower companies, will also be over. Then we will see massive change in the Net Loss figures reported by the company. From the current Quarterly Net Loss figures of over Rs.4,500 crores, we could see the figure drop to well under Rs.1,000 crores, possibly from Q4FY20 or Q1FY21.

Considering all these factors, do you think Vodafone Idea's business is doing so poorly to deserve a Market Cap of just about Rs.15,000 crores??

Do Share your thoughts on this report or Views on the points discussed. Awaiting your Comments.

Rise in Telecom tariffs: When can we expect it?

Reliance Jio has been dictating the tariffs in the Indian Wireless services market, ever since it launched it's services in middle of 2016. Reliance Jio first introduced trial services sometime in April 2016, but to avail the FREE services one had to purchase their LYF branded handset. Then later in August 2016, Jio started offering it's 4G sim cards for FREE usage for users of 4G handsets from select brands. And finally on 5th September 2016, it opened the gates for everyone to walk into a Jio store & get a Jio 4G sim, which came bundled with FREE usage till the end of December 2016, which was further extended to 31st March 2017.

At that point, i.e. end of March 2017, Reliance Jio had managed to add over 100 million users on it's 4G-only network. Airtel had over 300 million subscribers and Vodafone + Idea had over 400 million users on their respective networks. It's been little over 2 years since then. Reliance Jio's user base has shot up to over 300 million, that too all 4G-only subscribers. Airtel's user base has marginally shrunk to little under 300 million, which comprises of 95 million 4G users, 25 million 3G users and the rest nearly 160 million 2G users. Vodafone-Idea's user base has shrunk much more to about 320 million, comprising of 85 million 4G users, 25 million 3G users and 210 million 2G users.

Coming to tariffs, Reliance Jio launched some very aggressive tariffs in April 2017. They just removed the concept of counting talktime in terms of minutes or rupees or the concept of Roaming & STD calling and Data usage in terms of MBs or GBs per month. Everything came Unlimited for a fixed fee. The most popular plan for Smartphone users on Jio network is the Rs.399 plan, which comes with a validity of 84 days, which translates into an ARPU of about Rs.140 per month. But now a large portion of incremental users joining Jio network are the Jio Phone users, which have generate a lower ARPU of possibly under Rs.100 per month. Reliance Jio's overall ARPU for June 2019 quarter stood at about Rs.122 per month. This is with an Average Data usage of over 10 GB per user per month and Voice usage of over 650 minutes per user per month.

Bharti Airtel, Vodafone & Idea Cellular enjoyed healthy ARPUs in the region of Rs.175 to 200 per month back in 2016. The Average Voice usage used to be about 450 minutes per user per month and Average Data usage per Data customer was under 1 GB per user per month. After launch of Reliance Jio's services & tariff plans, all these incumbent operators have been forced to introduce tariff plans that are almost in line with those of Jio's plans. But only about 30 to 40% of their users consume Wireless Data. Hence they do offer specific plans for their Voice-only users as well. The years 2017 & 2018 were periods of adjustment for these operators as well as their customers. Almost all of them have shifted to these newer Unlimited Plans or Voice-only plans, resulting in massive drops in ARPUs for these incumbent operators. Bharti Airtel's ARPU for June 2019 stood at Rs.129 per month, which is the best amongst all these operators. Vodafone-Idea's ARPU stands at just Rs.108 per month, the lowest amongst the 3 operators.The significant difference in ARPUs of Airtel and Vodafone-Idea clearly suggests that Airtel has better managed to upgrade it's users to the newer tariff plans and a higher proportion of Airtel users are using it as their Primary sim, compared to that of Vodafone-Idea.

The significant drops in ARPU of the incumbent operators has happened alongwith huge increase in Average usage per customer. The average Data usage per 3G/4G Data customer per month has shot up to about 10 or 11 GB per month. Even the average voice usage has jumped to over 650 minutes per user per month. After falling for several quarters since middle of 2016, the ARPUs of Airtel and Vodafone-Idea have finally started improving over the last couple of quarters. This increase is because of increase in number of 4G users, which are consumers of Wireless Broadband services. Both these operators will

now focus on upgrading their 2G/3G users to 4G networks. Currently only 26% of Vodafone-Idea's total users are on it's 4G network, while the proportion for Airtel is at 34%. Hence both operators have huge scope of improvement here. Both of them will be aiming to have 150 million users each on their 4G networks by the middle of 2020. This will help them improve their ARPUs by atleast 10 to 15%.

Tariff Increases: I think the tariff increase will depend on the capacity congestion on Reliance Jio's network. The operator continues to add millions of new users every month, but there is not proportionate increase in it's traffic handling capacity. This is certainly affecting it's quality of service in many regions. I myself was a Jio customer from May 2016 to June 2019. But I faced huge issues in terms of slow Data speeds for many months at my place, before I finally ported out to Idea 4G. I am sure there will be many more people like me who might be porting out of Jio because of poor Data speeds at their place. I don't know what Jio's management has in mind, but I would certainly have considered reducing the Data usage limits on the existing plans and introduce newer plans for those requiring higher usage at slightly higher price points. This should help improve quality of service for Jio and also boost it's profitability.

Any tariff changes done by Jio will be quickly reciprocated by Airtel and Vodafone-Idea. Even a 5 or 10% increase in prices of existing plans will do wonders to improve the financial health of these struggling operators. Now the BIG Question is: When will we see some increase in tariffs? I think that day is not very far. We could see first signs of tariff increases anytime in the next 6 to 8 months. By then Jio will be much closer to it's target of having 400 million users on it's 4G network. Let's wait & watch. But I would certainly expect and like to see the ARPUs of all these 3 operators stabilise in the range of Rs.125 to 150 per month. This will help them make some money and also allow them to offer decent quality of service to their users.

Do Share your thoughts on this report or Views on the points discussed. Awaiting your Comments.

What next for Vodafone Idea?

Vodafone-Idea announced it's Q1FY20 Results last week, where it reported a small de-growth Q-o-Q in Total Income. And the market punished the stock with a collapse of over 25% the very next day. Bharti Airtel announced it's Q1FY20 Results this week, where it reported a small increase Q-o-Q in it's Revenues from India Mobile business. And the market rewarded it with a big 7% jump in share price the very next day.

At yesterday's closing price of Rs.6.35 per share, Vodafone Idea Ltd's Market Cap stands at about Rs.18,250 crores. On the other hand, with a share price of about Rs.347, Bharti Airtel's Market Cap stands at about Rs.1,78,000 crores, which it nearly 10 times that of Vodafone Idea Ltd. Isn't this a ridiculous situation?

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I know that Bharti Airtel is not just about India mobile business. It has operations in Africa and few other South-East Asian countries. In India too it has presence in many other telecom & media related businesses, which helps it de-risk it's growth dependence on the India Mobile business. But if we look at the numbers per se, Bharti Airtel's Consolidated Total Income is less than 2 times that of Vodafone Idea. Even it's EBITDA is just about 2.2 times. Then why is the Market Cap nearly 10 times. If we consider Bharti Airtel's growth outperformance compared to Vodafone Idea over the recent couple of quarters, it would be fine to give Bharti Airtel some valuation premium. A Market Cap of 3 or 4 times that of Vodafone Idea would have been fine, but not 10 times.

I am not saying that Bharti Airtel is expensively valued. I am saying that Vodafone Idea's valuations have reached ridiculously low levels. How can the market ignore the fact that Vodafone Idea still has over 300 million active subscribers and now after combining forces, it has the largest pool of liberalized spectrum amongst all the Mobile operators in India. Since the last 6 to 8 months, Vodafone Idea has been working on integrating it's network & spectrum resources. With nearly 2,00,000 towers in use, it will take Vodafone Idea another 8 to 12 months (or little more) to complete the network integration task. But once done, Vodafone Idea will have Data traffic handling capacity far higher than both Airtel & Jio.

Since the month of November 2018, when Vodafone Idea actually started working on integrating the networks of Vodafone India and Idea Cellular, it has been far less aggressive on the marketing & advertising front. It's first priority was to take down equipment from overlapping regions, which would have helped it save on operating costs substantially. And the time lag between taking down one set of equipment and then combining the spectrum resources on the other set of equipment, definitely must have resulted in drop in quality of service for subscribers of both Vodafone & Idea in those regions. Which in turn would have resulted in drop in subscribers and revenues from those regions.

By the end of June 2019, Vodafone Idea is said to have already removed one set of equipment from nearly 38,000 of the nearly 73,000 overlapping sites/locations. I am sure that the company will try & integrate it's spectrum resources at the earliest on towers that are serving high-population density regions or high-revenue generating regions. This will boost it's network capacity first in areas that matter the most. I am expecting Vodafone Idea to finish launching it's integrated network in all urban areas by the end of Q3FY20. Once it covers more than 50% of the urban areas or high-traffic areas, with it's Integrated network, Vodafone Idea will get more aggressive with it's marketing & advertising activities. It's main focus then will be on increasing it's 4G subscriber base count.

As we can see from the charts alongside, Vodafone Idea started falling behind Bharti Airtel in terms of 4G subscriber base count from Q3FY19 onwards. That's when the company started working on shutting down duplicate network sites & then integrating spectrum resources. Q4FY19 and Q1FY20 were expected to be the worst affected. Now that pain period is over. From Q2FY20, the company will start seeing improvement in network performance, region-by-region, which will result in improvement in 4G subscriber and Data traffic growth. In fact I won't be surprised if Vodafone Idea starts outpacing Bharti Airtel on these two counts from Q3 or Q4FY20 onwards, mainly on the back of wider 4G coverage and higher Data handling capacity, by then. It will be a very interesting battle and I am expecting it to start in a true earnest from Q3FY20 onwards.

Both Airtel as well as Vodafone-Idea would like to have 50% of their total subscribers, i.e. about 150 million users, upgrade to 4G services by the middle of next year. Airtel currently leads with 95 million 4G subscribers as compared to 85 million for Vodafone-Idea. But it will be very interesting to see which one of the two reaches 150 million 4G subscribers mark first or which one of the two is leading by the end of June'2020. I would like to place my bets on the dark horse, Vodafone Idea. Let's see if my estimates & expectations do turn out to be true.

Do Share your thoughts on this report or Views on the points discussed. Awaiting your Comments.

Telecom Status Report: VLR numbers at the end of May'19

TRAI's report on Subscriber numbers at the end of May'19 is out. The numbers for Top-3 players, which together account for about 90% of the market-share, have progressed on expected lines. Reliance Jio continued to lead the charge with addition of 8.1 million subscribers in May'19. Bharti Airtel lost 1.5 million, while Vodafone Idea lost 5.7 million subscribers during the month.

The bigger news that grabbed the headlines was that Reliance Jio has now overtaken Bharti Airtel to become the No.2 player in the Wireless telecom industry, in terms of Total Subscribers. Reliance Jio's Total Subscriber count has reached 323 million, compared to Bharti Airtel's 320 million at the end of May'19. This is something that was expected to happen sooner or later. Reliance Jio is expected to topple the current No.1, Vodafone Idea, sometime before the end of end of this year.

But if we look at the Active Subscriber base count, i.e. the VLR base of each of these three operators, Bharti Airtel is still very comfortably placed in the No.2 spot, with 320 million active subscribers. It lost 4 million Active subscribers during the month. On the other hand, Vodafone Idea continued to lose Active Subscribers at a faster pace. After the big slump of 26 million in April'19, Vodafone Idea saw it's Active users base drop by another 8 million during May'19. It's lead over Bharti Airtel is now just 14 million.

At the same time, Reliance Jio's Active users base increased by a mere 3 million, compared to the 8 million of Gross additions it did. It still trails the Top-2 by a good margin, with an Active subscribers base of 268 million. If the current trend continues for a few more months, Bharti Airtel will become the No.1 player toppling Vodafone Idea, maybe in another 2 or 3 months, well before Reliance Jio catches up with these 2 and overtake them.

Vodafone Idea seriously needs to ramp up it's Integrated network rollout to more circles and simultaneously start with wider marketing campaign. Since it is currently focusing on the Network rollout part, it has stopped Advertising it's brand & services on a large scale. This is clearly hurting the operator's numbers month after month. The operator is said to have completed the Integrated network rollout, which is expected to have much larger Capacity & Speed, in about 10 circles. Vodafone Idea is expected to complete the rollout across the country by the end of this year.

Bharti Airtel has been Advertising it's brand & services very aggressively, which is helping it gain 4G subscribers month after month, though at a pace slower than Reliance Jio. Industry reports suggest that a major portion of Reliance Jio's subscriber additions are happening for the Jio Phone subscribers, which are actually low-revenue subscribers.

We will get more details on each operator's performance in their Quarterly Results presentations this month.

Yes Bank's June'19 Shareholding: Some green signals.

The April to June'19 quarter has probably been the worst quarter faced by Yes Bank at the stock market. From a level of around Rs.275 on 1st April 2019, Yes Bank's share price collapsed nearly 64% to end around the Rs.100 mark at the end of June 2019. The price fall started a few days before the announcement of Q4FY19 Results, as if some people had got a whiff of the huge Provisioning and the resulting Net Loss that the Bank was to declare.

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Yes Bank's share price has continued to fall more & more after the announcement of Q4FY19 numbers. Hence it was quite evident that there must have been massive changes in Shareholding structure of different segments of investors. Following table shows the Shareholding pattern of various segments over the last 5 quarters:

There has been no significant change in Promoters Shareholding over the last 5 quarters. But there has been significant changes in the Shareholding of other 2 segments over the last 5 quarters.

Institutional holdings were at a high of 67.67% in June'18, which dropped to 57.7% in December'2018. During this period, Yes Bank's share price dropped from Rs.330 levels to Rs.180 levels. By March'2019, the number again increased to 61.31%, which resulted in the share price rebounding to about Rs.275 levels. And now during June'19 quarter, their holdings have dropped to a low of 50.72%, resulting into a massive share price erosion of 64% during the quarter.

In the Institutional category of Investors, the FPIs are the largest holders and also the biggest influencers of Yes Bank's share price. Out of the 17% reduction in Institutional shareholding between June 2018 to June 2019, the FPIs contributed to about 9% drop. Mutual Funds contributed to 5% reduction and Insurance Companies the rest. Amongst the Mutual Funds, Birla Sunlife, HDFC AMC and Reliance MF have been the biggest sellers. From Insurance companies, ICICI Prudential was the biggest seller. LIC of India has not just held on to it's stake in Yes Bank, in fact it even increased it by 0.8% in December 2018 quarter to take it to almost 8.9% now. LIC is probably the single largest non-Promoter shareholder in Yes Bank currently.

Considering the volatility in FPIs buying & selling pattern of Yes Bank's shares, they could very well start buying again this quarter, especially after Yes Bank's Q1FY20 numbers clearly suggest that the situation is not at all as bad as the market was fearing during the previous quarter.

Coming to Non-Institutional Shareholders, the Small Retail shareholders are clearly doing exactly opposite of what the FPIs are doing. These shareholders buy when the FPIs are selling and they sell when the FPIs are buying. That means they buy when the price is dropping and they sell when the price is rising. This lot of shareholders seem to be doing the clever thing. Between June 2018 and June 2019, their shareholding has increased from 6.27% to 18.72%.

A few Corporates too seem to have got interested in buying a stake in Yes Bank as the price was falling. This category has seen it's shareholding increase from 2.53% to 4.63% in just the June 2019 quarter. This is a positive sign as these shareholders are likely to be better informed investors and they know the risks & rewards of investing in Yes Bank's shares in the current situation. NRIs too have increased their holding from 0.89% to 1.21% in the quarter gone by.

But the biggest positive sign is the fact that Employees of Yes Bank have acquired nearly 3.5 crore shares of the Bank, which is 1.53% stake in the Bank, during the June 2019 quarter. A total of over 600 employees of Yes Bank have together acquired over 3.55 crore shares during the quarter. This is the single biggest signal that things are not as bad with the Bank as the market is fearing or the rumour mills are spreading.

It will be interesting to see how the share price of Yes Bank behaves in this quarter and how the shareholding pattern evolves.

Do Share your thoughts on this report or Views on the points discussed. Awaiting your Comments.

Yes Bank Q1FY20: This ship is NOT Sinking

Following are the important points from Yes Bank's Q1FY20 Numbers and Investor Presentation:

* Total Income stood at Rs.9089 crores, jump of 8% Q-o-Q and 10% Y-o-Y.

Interest Income stood at Rs.7816 crores, flat Q-o-Q and 19% higher Y-o-Y. This growth is despite the fact that some previous Interest Earnings related to recent NPA accounts were reversed. Other Income stood at Rs.1273 crores, 139% higher Q-o-Q and down 25% Y-o-Y. Other Income was boosted by Treasury Gains of about Rs.450 crores.

* Operating Profit stood at Rs.1959 crores, jump of 48% Q-o-Q and down 20% Y-o-Y.

Operating Expenses came at Rs.1594 crores, lower by 7% Q-o-Q and an increase of just 9% Y-o-Y. Some bit of serious savings on operating costs clearly evident. Interest Expended stood at Rs.5535 crores, higher by 3.4% Q-o-Q and by 27% Y-o-Y.

* Provisioning for the quarter stood at Rs.1784 crores, compared to Rs.3662 crores in previous quarter and Rs.626 crores a year ago.

Provisioning is said to have included about Rs.1100 crores of one-time Marked-to-Market losses on a few investments due to rating downgrade of the assets. That means NPA Provisioning stood at just about Rs.700 crores.

* Net Profit stood at Rs.114 crores, compared to a Loss of Rs.1507 crores in the previous quarter and a Profit of Rs.1260 crores a year ago.

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* Retail Term Deposits increased 38% Y-o-Y and 8% Q-o-Q to a figure of about Rs.63,300 crores.

This is excellent news, especially in the backdrop of the terrible quarter Yes Bank faced at the stock market, while being surrounded by huge amounts of rumour-mongering, claiming that the Bank is set to face a huge Liquidity crisis and will find it difficult to survive. Strong growth in Retail Term Deposits means that customers are reposing faith in the Bank.

* Corporate Term Deposits too grew by 13% Y-o-Y and 1.2% Q-o-Q to a figure of about Rs.93,400 crores.

Even the corporate clients seem to have held faith in Yes Bank and did not get too affected by the rumours in the Stock market.

* Retail Loan Book grew 43% Y-o-Y and 7.2% Q-o-Q to reach a figure of about Rs.43,200 crores.

Retail segment contributed about 61% of the incremental growth in Yes Bank's overall Loan Book. It's other segments, i.e. Corporates and MSMEs too continued on the growth path, though at a slower pace of about 5 to 6%. Yes Bank's Corporate Loan book now stands at about Rs.1,31,800 crores.

* Yes Bank continues to post strong growth in all kinds of Digital Transaction processing with Market Leadership in many of them.

Yes Bank processed about 44 million IMPS transactions, 85 million AePS (Aadhar enabled Payment System) and 767 million UPI transactions during Q1FY20, with strong double-digit growth Q-o-Q.

* Gross NPAs have increased to Rs.12,092 crores and Net NPAs to Rs.6,883 crores.

This is only major sore point from Yes Bank's Q1 numbers. Most of the NPAs seem to be coming from the EPC industry segment. The most likely accounts are from Reliance Infrastructure subsidiaries and Essel Group companies. But the promoters of both the groups have promised to repay all loans by selling their Assets. Even Yes Bank management seems to be fairly confident about recovery from most of these NPA accounts.


Do Share your thoughts on this report or Views on the points discussed. Awaiting your Comments.

Vodafone-Idea rapidly losing Active Subscribers vs Airtel & Jio

TRAI recently came out with Subscribers Report for the period ending April 2019. The headline that most media channels flashed was that Jio added 8 million subscribers, while Airtel & Vodafone-Idea lost 3 million & 1.5 million subscribers respectively.

I decided to collate the Total Subscribers Data, alongwith VLR % Data for all the above 3 operators since January 2019, to arrive at the Active Subscriber base data for the last 4 months. The data shows that Reliance Jio's active subscribers base has grown by over 10% between January & April 2019 . Airtel's active subscribers count is also fairly steady with a marginal 2% drop during the same period. But Vodafone-Idea has seen a massive 11% drop in it's active subscribers count, with April 2019 proving to be worst month during the period.

As you can see from the chart alongside, Reliance Jio's VLR subscriber base increased from 240 million to 265 million during the 3 months period. It continues to be the No.3 operator in the country, but is now a lot closer to the Top-2 players. Vodafone-Idea could soon be losing it's No.1 position, atleast in terms of the VLR base. In January 2019, Vodafone-Idea had a comfortable lead of 54 million over Airtel and 145 million over Reliance Jio. Now the gap is down to just 18 million over Airtel and 77 million over Reliance Jio. Vodafone-Idea has been losing it's active subscribers every month. But the biggest drop happened in April 2019, when it's VLR % dropped from 93.27% to 87.03%. This resulted in an erosion of 26 million VLR subscribers count in a single month.

The exact reason for such a big drop in Vodafone-Idea's VLR % is yet unknown. But it could also be due to the massive Network overhaul activity underway for the operator in several circles. The VLR % might prop up again to over 90% once the Network stabilizes again. We could see another couple of months of low VLR % for Vodafone Idea, before we start seeing the effects of improved Network performance for the operator.

On the other hand, Airtel continues it's aggressive marketing alongwith improving it's 4G network coverage. Airtel is also a beneficiary of Vodafone-Idea's network troubles during this period of overhaul. Both the operators were in any case expected to lose substantial numbers after they introduced the minimum recharge plans, where every user had to recharge with atleast Rs.35 evey 28 days to continue availing service on their Airtel or Vodafone or Idea sim cards. During the 3 months period from January to April 2019, Airtel lost just 7 million of it's active subscribers count, while it's VLR % improved from 97.3% to 100.7%. Airtel is also probably receiving inflow from Tata Tele's subscribers base, with people losing patience of the delayed merger deal. Tata Tele subscribers are rapidly porting out their numbers to other operators, with Airtel probably getting a good share of it.

Reliance Jio continues it's steady march towards it's goal to become India's No.1 operator in terms of Revenues as well as Subscribers. It continues to see it's VLR % remaining steady around the 83 to 84% mark. Reliance Jio could become the No.2 operator in terms of Active subscribers by the end of December 2019, if not sooner. By then it could very well be the No.1 operator in terms of Revenues, that too by a decent margin.

Who is winning the Revenue Race: Airtel or Vodafone-Idea or Jio?

The TRAI's Revenue figures for March'2019 Quarter are now out. And it's throwing some interesting information.

For the Quarter ending December 2018, Vodafone-Idea was the No.1 operator with an Adjusted Gross Revenue (AGR, including NLD, ILD and ISP numbers) figure of Rs.10,377 crores. It was closely followed by Airtel at No.2 with an AGR of Rs.10,146 crores, just about 2.3% shy of the leader. Then came Jio at No.3 with an AGR of Rs.9,644 crores, just about 5% shy of the No.2 player. That means the gap between No.1 and No.3 was just about 7%!! BSNL/MTNL is a distant No.4 with an AGR of Rs.2864 crores.

With competition so tight, coupled with the fact that Reliance Jio continues to add millions of new 4G customers every month, it's Monthly addition figure of 4G customers is larger than the Quarterly addition figures of 4G customers for both Vodafone-Idea and Bharti Airtel, things were set to change in the Revenue Rankings sooner or later.

The Big News this quarter is that Reliance Jio has already overtaken Bharti Airtel to become No.2 in the Revenue Rankings, even though it posted just 4% growth in it's AGR figure Q-o-Q to reach Rs.10,032 crores. The bigger reason being a near 11.5% drop in AGR for Bharti Airtel to reach Rs.8,986 crores. The reasons for such a sharp drop in AGR for India's former No.1 operator is not exactly known. It could be due to some one-time adjustments as well and the AGR figure might bounce back in the next quarter. That we will have to wait & see. Currently we will focus on the numbers that we have.

Vodafone-Idea has managed to hold it's fort with a nominal 0.3% drop in AGR and is now at Rs.10,348 crores. But it is very likely that Vodafone-Idea will lose it's No.1 position to Reliance Jio in the June'19 quarter, unless it manages to ring in some growth for itself. BSNL/MTNL posted a strong 24% Q-o-Q growth in it's AGR figure and it now stands at Rs.3,546 crores.

Bharti Airtel: It managed to report a growth in it's AGR for 10 out of the 22 circles. The circles where it managed to post double digit % growth are: Bihar, Gujarat, North East and West Bengal. Even Orissa and Rajasthan posted healthy growth for Airtel. But at the same time Airtel saw massive drops in AGR figures for important circles like Delhi, Mumbai, Karnataka and Tamil Nadu. Even Airtel's NLD AGR has seen a drop of 18% Q-o-Q. Karnataka alone contributed 8.5% of Airtel's Total AGR in December'18. And it reported a drop of 15% in AGR for it's biggest contributing circle. Airtel is rapidly expanding it's 4G coverage and re-farming it's 2G & 3G spectrum for use with 4G in many circles to expand capacities. Hopefully this should help bring back some growth in AGR in the coming quarters. Bharti Airtel will also receive a small boost in AGR when Tata Tele's mobile business finally merges with it. That process is in the final stages.

Vodafone-Idea: AGR figures for almost all circles were pretty stable Q-o-Q in case of Vodafone Idea, with only 1 or 2% variations in most cases. Only Bihar circle saw an erosion of nearly 19%. Gujarat, Haryana, Maharashtra and Punjab reported some amount of noticeable growth, but nothing significant. Vodafone-Idea too continues to improve the capacity & reach of it's 4G network, primarily by combining the frequencies of both previous entities. It has the advantage of having the largest pool of 4G-capable spectrum on a combined basis now, after merger. This should translate into capacity advantage sooner or later and then we could see Vodafone-Idea reporting healthy growth in customers as well as revenues.

Reliance Jio: Riding on a strong growth in customer additions across the country, Reliance Jio managed to post a growth of between 2% and 7% for most of the 21 out of the 22 circles, where it reported an increase. It was only the circle of Mumbai where it reported a decline of 1.5% in AGR. With a huge number of Jio Phone as well as Smart Phone users on it's network across all parts of the country, Reliance Jio is certainly experiencing capacity constraints in several regions. I for one am not happy with my experience of Jio service over the last few months. Jio has deployed it's best network only in Urban areas or in areas of high population density and paying capacity. While it has deployed secondary network in rural areas, more focused on catering to Jio Phone users. Jio has the momentum in it's favour currently. But as and when a higher proportion of it's customers start experiencing poor service, it could very well see a slowdown in growth momentum.

Why are Reliance Jio and Vodafone Idea divesting their Fibre & Tower infrastructure?

Over the last few weeks we have seen announcements from both Reliance Jio as well as Vodafone Idea, about their actions or plans related to divesting their stake in their Fibre and Tower subsidiaries. Telecom Towers and Fibre Optic cables form the crucial backbone of Wireless telecom services. Then why are two of India's Top-3 operators in a hurry to reduce or divest their stake in their telecom infrastructure subsidiaries?

Each of the Top-3 wireless operators in India; i.e. Vodafone Idea, Bharti Airtel and Reliance Jio; have their network equipment working on nearly 2 lakh telecom towers across the country, which helps them to cover over 90% of the population of India with their 2G or 3G or 4G services. While Reliance Jio is a 4G-only operator, Bharti Airtel and Vodafone Idea are still offering 2G services with a population coverage of almost 95%. It is mainly being used to serve the people who are yet to upgrade to smart phones and mainly use their phones for voice calling service. 2G service is being used by many Smart phone users as well, where their primary sim is on 4G network, but their secondary sim has to be on 2G network. The secondary sim doesn't generate much revenues and is mainly used for incoming calls. And now we can see newer smart phones being launched with the ability to have both sim cards latched on to 4G networks.

Hence the days of 2G networks existence are now numbered. The 3G network will die even faster. Vodafone Idea and Bharti Airtel were having a 3G network mainly in areas of higher population density and was mainly used for Wireless Data services, before the advent of 4G networks. Now both the operators are focused on expanding their 4G networks, starting with areas of higher population density and busy highways, and then moving to lower density regions. While doing so, they are even re-farming their 2100 MHz spectrum (which was used for 3G service) for use with their 4G network in order to increase their 4G Data handling capacity. It goes without saying that the 4G network is lot more efficient than 3G or 2G networks and can now carry both Data as well as Voice traffic.

Since the traffic on 2G networks is also decreasing with every passing day, these operators are reducing the spectrum allocated for 2G networks (mainly 900 Mhz and 1800 Mhz bands) and re-farming major portions for use with their 4G networks. While Reliance Jio has already achieved a population coverage of nearly 90% with their 4G-only network, both Bharti Airtel and Vodafone-Idea are currently at about 65 to 70% with their respective 4G networks. As and when they approach 90% population coverage with 4G networks, these operators will start shutting down their 2G & 3G networks at a much faster pace, forcing their customers to upgrade their phones to receive better service.

Each of the three operators offering 4G service, are seeing an average monthly Data consumption of nearly 10 GB or more per customer. With nearly 450 to 500 million people already enjoying 4G services, there is humongous amount of Data traffic being carried by these operators. This is where the role of the Fibre Optic cables comes into play. While Reliance Jio has a higher proportion of their telecom towers connected with Fibre optic cables, it has a capacity advantage. Reliance Jio network design was planned to handle such huge amounts of Data traffic, right from Day-1. On the other hand, Bharti Airtel and Vodafone-Idea were relying more on Wireless micro-links for communication between different towers in a region and only a select few 'Node' towers were connected with fibre optic cables. They are now being forced to increase the fibre connectivity to higher proportion of their towers in order to be able to handle the hugely increased data traffic.

With the Towers and the Fibre infrastructure playing such an important role in the functioning of a wireless data network, Why are these operators in a hurry to reduce or divest their stakes in those subsidiaries?

And the reason is Monetisation. Reliance Jio has built nearly 1.5 lakh towers of it's own. On all these towers currently only Reliance Jio equipment is fixed. Most of these towers are said to have the capacity of have equipment of more than 1 operator. By having another operator putting up their equipment on a tower, Reliance Jio's tower company can start earning rental income, without any significant increase in operating costs. Whichever operator becomes a tenant on Reliance Jio's towers, would also be interested in sharing the Fibre optic cable that most of these towers are connected with. This way Reliance Jio's Fibre company will start earning lease income by leasing a portion of it's cables capacity. With progress in technology, Fibre optic cables have seen huge increase in their capacities and it's not too expensive to increase the capacities of older cables, that were laid a few years ago.

Bharti Airtel, Vodafone India and Idea Cellular had collaborated to form a company called Indus Towers, which has been India's largest tower company for many years now. Now Reliance Jio's tower company will give it a tough fight, in a number of towers department. Bharti Airtel has it's tower company too, i.e. Bharti Infratel, which also is amongst the larger tower companies in India. Indus Towers is an unlisted company with 42% ownership each with Bharti Infratel and Vodafone India and the remaining 16% with Idea Cellular. Indus Towers is now merging with the listed Bharti Infratel to regain the No.1 position in terms of number of towers. Idea Cellular's shareholding in Indus Towers is now a part of Vodafone-Idea JV. It's highly likely that Vodafone-Idea will encash their stake in the merged Bharti Infratel, as the merger concludes.

In the Fibre front, both Vodafone and Idea Cellular had their own respective Fibre optic cables laid across nearly a lakh kilometres each. After the merger, it is likely that they have several overlapping routes. Just last week, Vodafone-Idea have received the approval from NCLT to separate their Fibre optic cables capacity into a separate subsidiary. This is most likely in preparation to divest a part of their stake in it and then let it operate as an independent company, which can lease it's surplus capacity to other operators.

Monetisation and all is fine as of now. But the question in mind is that, since the Data volumes are increasing at a rapid pace, they will be using an increased portion of their Fibre optic capacity with every passing month. So whatever is said to be Surplus capacity today, might not remain Surplus maybe say 12 or 24 months from now. That time they might have to lease capacity from someone else. Or else build new capacities. Sometimes I think that these operators lack long-term foresight. A few years back, they did nothing when Reliance Jio was building a brand new 4G-only network with huge capacities for Data consumption. Airtel, Vodafone & Idea clearly were over-confident on their 2G & 3G services and thought that their customers are more than happy with the services they were offering. Reliance Jio spent about 3 good years building it's fibres, towers & network and with it's big bang launch, it completely changed the way people consumed Data and also the financial metrics of the entire industry.

Vodafone Idea or Bharti Airtel: Who is facing the Jio onslaught better?

In H2 of CY2016, when Reliance Jio opened the floodgates of it's pan-India 4G service, the situation in Indian Telecom market was way different that what it is today, both on the customers side as well as operators side.

On the customers side, we were used to recharging with 1 GB or 2 GB or 5 GB Data plans, which would be used over a month or more. And for calling we used to recharge for talktime and rate cutters and would be cautious about the minutes we use spend speaking on the phone or the Data that we consume.

On the Operators side, the Top-3 players back then; namely Airtel, Vodafone and Idea; held around 80% market share, while the smaller players like BSNL, RCom, Tata Tele, Aircel & Telenor, held the remaining 20% amongst themselves. The Top-3 players were generating big profits every quarter and reported healthy growth Q-o-Q, while the smaller players were either in losses or just about managing to cover their costs.

We are now in the middle of 2019 now, i.e. about 30+ months since the launch of Jio's 4G services. There are just 4 players in the market. Vodafone & Idea, which were the No.2 & No.3 players back then, have merged to become the No.1 now. Airtel, which was the No.1 player back then, is now No.2, after having taken over the Spectrum or Operations of Telenor, Aircel and Tata Tele. But they both are rapidly losing market share to Jio. By now Jio has probably overtaken Airtel to become No.2 operator in India and could overtake Vodafone Idea in the next few months to become No.1.

And we, the customers, no longer measure the minutes we spend talking on the mobile. Neither do we bother too much about the amount of Data we consume watching & downloading videos and other stuff on the internet. And we are now spending a fraction of what we used to spend for the measured use of wireless services that we were accustomed to.

Now it all boils down to how well Airtel and/or Vodafone Idea pull up their socks and start holding their fort in terms of Subscriber and Revenue market shares. In the initial few quarters of Jio's launch the rate of market share shift from these two players to Jio was very fast. But with every passing quarter, the shift is slowing down. Airtel as well as Vodafone Idea lagged Jio by a huge margin in terms of 4G network coverage & Data handling capacity. With every passing quarter, they are trying to catch up with Jio's reach by a few percentage points.

Even though both Airtel and Vodafone Idea each have nearly 300 million or more subscribers on their networks, nearly 60 to 70% of those are still on the 2G or 3G networks. And most of these are now using their Airtel or Vodafone Idea Sim as their secondary Sim cards and have taken a Jio connection as their primary sim card. Jio on the other hand is a 4G-only network and hence nearly 85% of it's subscriber base, that is registered on VLR (Visitor Location Register), is generating healthy revenue for the company. Compared to that, only about 35 to 40% of official subscriber bases of Airtel and Vodafone Idea are actually generating healthy revenues for the companies and most of the rest are just doing the Validity recharges.

In order to study the progress of Airtel and Vodafone Idea, I have decided to keep a track of the Q-o-Q progress of their 4G subscriber bases and the Total Data Volume handled by their networks. The first chart alongside represents the 4G subscriber numbers for both operators at the end of each quarter, starting from #Q1FY19. As we can see, both Airtel & VodafoneIdea were neck-to-neck for Q1 and Q2, but during the next 2 quarters, Airtel has pulled ahead of VodafoneIdea. From about 57.4 million 4G subscribers in #Q1FY19, VodafoneIdea has seen it increase to 80.7 million in #Q4FY19. During the same period, Airtel's 4G subscriber base has increased from 58.3 million to 86.8 million.

The possible reason for VodafoneIdea falling behind in the last 2 quarters is the merger taking place at the end of August 2018. Since then the merged company has started to remove duplicate network sites across the country in order to cut down on operating costs. These removed network equipment will now be used to expand the network coverage to more regions across the country. The company is also combining the spectrum holdings and launching it's network with much higher capacity than before. The effects of these network transitions should start reflecting in the 4G subscriber numbers in the second half of the current fiscal onwards.

Coming to the Total Data Volume handled by the networks of the two operators, the picture is quite similar to that in the 4G subscriber bases. Airtel had a small lead over VodafoneIdea in #Q1FY19. But it's lead has now expanded to a significant level by #Q4FY19. I am expecting this trend to start reversing and VodafoneIdea's numbers start closing the gap with Airtel's numbers from #Q3FY20 onwards.

I will try and bring Quarterly comparison updates to check the progress of these two operators. This will help us to see which one of the two is actually facing the Jio onslaught better. As of now, it is Airtel which is performing better than VodafoneIdea for sure.

What's the possible future of Vodafone Idea Ltd's share price?

Idea Cellular Ltd, which was the third largest mobile operator in India until August'2018, was seeing it's Revenues fall and Profits disappear after the onslaught of #RelianceJio. The same was the case with all other mobile operators, including Bharti Airtel and Vodafone India. #BhartiAirtel made some clever purchases during the distress in the sector and became self-sufficient in terms of All-India spectrum for 4G services. Vodafone India and #IdeaCellular were not that swift in decision making and were left with no choice but to merge their operations in order to become stronger and survive the #Reliance #Jio Tsunami.

After nearly 18 months of starting the procedure, the unlisted #VodafoneIndia merged into the listed #IdeaCellular to form Vodafone Idea Ltd. on 31st August 2018. This merger is expected to give them several benefits. On one hand, they will be able to combine their Spectrum Holdings and offer much larger traffic-handling capacity to their combined customer base. This will also allow them to roll-out 4G services across India at a much faster pace and also re-farm some of their precious 2G/3G spectrum for 4G, which is the revenue driver for all mobile operators currently. 2G & 3G are both dying technologies and hence it will be a waste to keep some of the valuable spectrum occupied for offering 2G/3G services for long.

Apart from the Spectrum and Network combining part, there are huge benefits to be had by merging their IT & Billing systems, Sales & Marketing teams and even their Administrative teams. There will be huge Operating Cost savings in the Tower tenancies. Previously both #VodafoneIndia and #IdeaCellular were two different tenants on the same towers or same areas. Now with their Networks getting combined over a period of time, these duplication of tenancies will be avoided and the merged entity will be able to save hundreds of crores every quarter in just the rental payments to tower companies. There will be some penalties to be paid to the tower companies in the initial few quarters for cancellation of rental agreements prematurely, but this will translate into substantial savings in the coming years.

Now lets look at the way the share price has behaved over the last 1 year:

In May'2018, when it was just Idea Cellular Ltd., the share price was hovering a little over Rs.60 mark. But by the time the merger actually became effective on 31st August 2018, the share price had dropped below the Rs.50 mark. It dropped further as the #Q2FY19 results were announced (which included numbers for Idea Cellular Ltd for first 2 months and Vodafone Idea Ltd for the month of September 2018). Since then the share price hovered between the Rs.30 to 40 range till March 2019.

In March 2019, #VodafoneIdea announced a Rights Issue to raise fresh capital of Rs.25,000 crores. Everyone was expecting the company to offer the Rights Issue to be at a price of around Rs.23 to 25 per share, which was at a discount of about 20 to 30% to the then share price. But Vodafone Idea Ltd. shocked everyone by pricing the Rights Issue at just Rs.12.50 per share. What this meant is that there will be much higher level of dilution to the company's Equity base as it will be issuing nearly 2000 crore fresh shares to raise Rs.25,000 crores in fresh capital.

Before the announcement of Rights Issue, the Market Cap of Vodafone Idea Ltd stood at around Rs.26,200 crores, when the share price was around Rs.30/-. Today the share price is trading at just over Rs.13/-. With the expanded Equity base, the Market Cap of the company now stands at about Rs.37,500 crores, which is an increase of just over Rs.11,000 crores. Remember that the company has raised Rs.25,000 crores in fresh capital via the Rights Issue. Hence ideally, the company's Market Cap should have increased by approximately that much value. The Rights Issue adjusted price, from the pre-Rights Issue price of Rs.30, should have been around Rs.17.50 to 18 per share. That means the price has seen further correction of another 25%.

Now lets look at the company's Quarterly Financial Performance. As we can see from the Quarterly Total Income chart alongside, #IdeaCellular Ltd. saw it's Revenues slide from levels of about Rs.9500 crores in March 2016 to about Rs.6000 crores by June 2018. That means in a matter of about 2 years, the company had seen it's revenues drop by over 35%. In the September 2018 quarter, #VodafoneIndia 's revenues were added to Idea Cellular's for the last one month only. Hence the combined Vodafone Idea Ltd's revenues saw a small jump to about Rs.7900 crores. From December 2018 quarter, we can see the full numbers for the combined entity, which is currently stable at just under Rs.12000 crores. With most of the intense competition period behind us, things are expected to get better for all the leading telecom companies now, since the Top-3 players hold over 90% market share and No formidable player expected to enter the market now.

With every passing week, #VodafoneIdea is rapidly working to increase it's 4G network footprint and launch integrated network, instead of having 2 different operating networks for #Vodafone & #Idea brands. By the end of 2019, #VodafoneIdea is expected to complete more than 75% of the Network Integration work. Network Integration is expected to translate into better quality of service to all it's customers. Hence as the Network Integration coverage increases progressively, the exodus of customers from Vodafone & Idea to either Jio or Airtel, will stop and the company could start seeing inflow of new customers. Plus there will be increase in the number of it's own customers upgrading from 2G or 3G use to availing 4G service. This should help in bringing back some amount of Revenue growth for Vodafone Idea Ltd in the coming quarters.

In the chart alongside, we can see the Quarterly progress of Idea Cellular's ( and then Vodafone Idea's) EBITDA since March 2016. Idea Cellular was managing at EBITDA of over Rs.3600 crores (EBITDA margin of over 36%) on it's own back in March 2016. It saw a dramatic collapse to just Rs.800 crores by June 2018. Over the last 2 quarters, the savings from Operational synergies of #VodafoneIdea have started showing it's signs as the EBITDA has already increased to over Rs.1900 crores in March 2019. The EBITDA Margin stood at just over 16% for March 2019 quarter. I am expecting this to improve to about 25% by December 2019 or March 2020. That means the EBITDA figure is expected to improve further to about Rs.3000 crores by then. At that point the company will be generating some amount of Cash Profit. The Interest outgo for #VodafoneIdea stood at Rs.2946 crores in #Q4FY19. With fresh Capital infusion of Rs.25,000 crores during the current quarter, combined with ongoing CAPEX, we can expect the quarterly Interest outgo to remain in the Rs.2400 to 2800 crores range for the next few quarters.

Conclusion:

For FY20, I am expecting #VodafoneIdea to report a Total Income of little over Rs.50,000 crores and an EBITDA of around Rs.11,000 crores, with a Cash Profit of about Rs.1000 to 1500 crores. Yes, the company will continue to post Net Loss as the Depreciation figure will continue to increase and could be around Rs.20,000 crores for the year. By the end of FY20, we could see slight reduction in Competitive Pressures due to the following reasons: Firstly, India's telecom market has now become a 3-player market with no major competitor expected to enter now. The most aggressive player, Reliance Jio, is expected to curtail it's aggression as it is close to achieving it's target of 400 million subscribers. And #Reliance #Jio itself is facing Network congestion in several parts of the country. Hence we can expect Reliance Jio to finally start hiking prices of all it's Unlimited Plans, anytime in the next 6 months. As and when this happens, it will be a very big positive for all the operators. Even if #RelianceJio increases the prices of it's plans by 5%, we could see the valuations of all the listed telecom players to increase by upto 20% quite easily.

In short, I think the worst is behind us in case of financial health of telecom operators is concerned. More so in the case of Vodafone Idea Ltd., which saw it's share price recently take a dip below the Rights Issue price of Rs.12.50/-. I am fairly confident that Vodafone Idea Ltd. will survive the current intense Competitive pressures and then start gaining strength by the end of FY20. From the current No.1 Rank, Vodafone Idea could drop a place sometime this year as it is losing market share in subscribers as well as Revenues, but it will still continue to be a formidable player in the Indian telecom market and might even start gaining market share by the end of FY20.

Are things really so bad with Yes Bank?

Until less than a year ago, Yes Bank was touted to be amongst the best Private Sector Banks in India. Over the years, Yes Bank has earned a name to be a high-tech Bank, one which makes good use of technology to innovate with products & services. Yes Bank was probably the first Bank to bring 2-step authentication for Internet Banking facility, at a time when many other banks weren't even offering decent Internet Banking facility. Yes Bank is still the leader in many new generation transaction services like UPI or IMPS or Aadhar-enabled Payment System or API Banking, where it is the Banking partner for many Fintech companies like PhonePe, etc.

Over the last 10-15 years, Yes Bank has built a decent reputation to be amongst the best when it came to Corporate Banking, with lots of innovative products & knowledge-based services. At the same time, it was spreading it's Branch Network to reach a scale of over 1100 branches currently. With a decent number of Branches, spread across most of the important cities in India, Yes Bank has now started focusing on increasing it's Retail & SME Banking business. With a strong 62% Y-o-Y Growth in Retail Loan book, it now constitutes 16.7% of the Total Loan Book, which was just 12.2% a year ago. Even the Retail Term Deposits have grown over 40% Y-o-Y. This momentum is expected to continue in this year & the next, as the Bank wants to widen it's customer reach & reduce dependence on Corporate Banking.

A few days ago, when Yes Bank reported it's first Quarterly Net Loss for Q4FY19, on the back of a large provisioning related to IL&FS exposure, the share price of Yes Bank has been battered like as if the Bank is about to shut down in the near future. Just have a look at the share price movement of Yes Bank over the last 1 year or so:

Yes Bank was trading at near Rs.400 level in August'2018. A few weeks after that, the news of RBI's rejection to extension of Mr. Rana Kapoor's term as MD & CEO came in and the share price got hammered to about Rs.160-170 levels. After stabilising for a few months, it was regaining strength after the appointment of an experienced Banker, Mr. Ravneet Gill as the new MD & CEO of Yes Bank. But the share price is again behaving as if all hell has broken loose on Yes Bank with just one large Provisioning. Somehow I feel that all the Business Channels are working in tandem to write-off Yes Bank's survival chances. I certainly feel that things are certainly not as bad with Yes Bank as they are being made out to be by most of the Business channels as pink newspapers.

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At today's closing price, Yes Bank's Market Cap is just under Rs.32,000 crores. I feel this is nothing short of Crazy. Look at all the PSU Banks. They have much much larger NPA problems, have been writing off loans since the last few years and are still sitting on large Net NPA figures. Even those Banks are trading at better valuations than Yes Bank. Take the case of State Bank of India, India's largest Bank. It has a Loan Book of almost Rs.22 lakh crores, nearly 9 times the size of Yes Bank Loan Book. But it's sitting on Gross NPA of over Rs.1.72 lakh crores, which is nearly 22 times that of Yes Bank's figure. Despite years of large Provisionings, SBI's Net NPA figure still stands at almost Rs.66,000 crores, which is nearly 15 times that of Yes Bank's figure. Still State Bank of India has a Market Cap of over Rs.2.80 lakh crores, which is nearly 9 times that of Yes Bank's figure.

In the adjoining table, I have compared Yes Bank's FY'19 figures with that of Bank of India's FY'19 figures. Bank of India is much much smaller than State Bank of India and hence is within comparable range of Yes Bank.

Bank of India's Loan Book is nearly 57% larger than Yes Bank's Loan Book. Still it's Interest Income & Net Interest Income are just about 40% higher. Clearly indicates Yes Bank's superior yields. On the other hand, BoI's Operating Expenses are 71% higher than Yes Bank's. Which again shows the PSU Bank's Operating inefficiencies when compared to a modern Private Sector Bank. BoI's Provisions are nearly 3 times that of Yes Bank's, which pulled the former into a substantial Net Loss. Thanks to Losses since the last few years, BoI has not been declaring any Dividends since the year 2015. Whereas Yes Bank continues to pay Dividend.

BoI's Gross NPA is nearly 7.7 times that of Yes Bank's figure, while it's Net NPA is still 4.2 times Yes Bank's figure. Despite all these negatives, Bank of India's Market Cap is just about 29% lower than that of Yes Bank's figure. In a couple of years time, Yes Bank will be close to overtaking Bank of India in terms of Total Income, thanks to it's faster growth rates. The management has projected a growth rate of between 15 to 20% for FY'20 and I think it can easily achieve this figure.

The point that I wish to make is that: All the recent negative environment surrounding Yes Bank, created by all the Business Channels & Business dailies, are short term in nature. Their effect with go away after a few weeks. Appointment of a Board member by RBI on Yes Bank's board shouldn't be taken as such a big negative. I think RBI itself has undergone management change recently and the new Governor wants to play it safe. Having their nominee on Yes Bank's board will help the Bank to regain it's reputation sooner rather than later. I think this is an excellent opportunity for Long Term Investors to get into Yes Bank. I still have faith in Yes Bank and believe that it has what it takes to be the next HDFC Bank or something on those lines. Just give it some time.

Do Share your thoughts on this report or Views on the points discussed. Awaiting your Comments.