A couple of days ago I read a headline in some business news media that Bharti Airtel has overtaken HDFC Bank in Market Cap terms with a value of nearly Rs.2.78 lakh crores. Then I checked the Market Cap of Vodafone Idea, which is a part of my #StocksLogicPortfolio, and found it to be around Rs.12K crores only, i.e. about 4% of Bharti Airtel's Market Cap. Then I thought of comparing some important Operational numbers of both companies to see if this super-wide gap in the way both companies are valued is fair or not.
Both Vodafone Idea & Bharti Airtel are telecom service providers and compete in the Indian Mobile Services market are mostly the only things common between them. Beyond that there are a lot of differences. While Vodafone Idea is primarily a Mobile Service provider with a very small scale Wireline/Broadband operation in India and has some stake in Indus Towers. That's it. On the other hand, Bharti Airtel has several business verticals: Firstly, it is a Mobile Service Provider in 18 countries in Asia & South Africa, with India forming nearly 75% of it's Customer Base. But apart from that, Bharti Airtel is a significant player in Wireline/Broadband, Direct-to-Home & Payment Bank services in India. Hence Bharti Airtel certainly deserves some premium for it's diversification into more markets for Mobile Services & into more services in India. It's Indian Mobile Services business contributes nearly 50% of it's Consolidated Revenues, as of #Q3FY20. This share is set to increase from #Q4FY20 onwards because of the tariff hikes effected from December'19 by the entire Indian Mobile Services industry.
Now lets look at some Important Numbers for Comparison in the table alongside. In terms of Wireless Customer base, Minutes on Network & Data Volume, Vodafone Idea's numbers are around the 70% mark of Bharti Airtel's numbers. But in terms of Total Income, Vodafone Idea is closer to 50% mark of Bharti Airtel, mainly because of the reasons I have mentioned in the previous paragraph. Vodafone Idea's EBITDA is lower at around 40% of Bharti Airtel, primarily because the former is still in the process of Integrating the two different networks of Vodafone India and Idea Cellular into one. By the end of Q3FY20, the company is said to have removed duplicate equipment from nearly 58,000 towers out of 73,000 towers which carried equipment of both individual operators at the start of integration process. We should see progressive improvement in this department for Vodafone Idea over the next 2 to 4 quarters, as it completes removing duplicate equipment from remaining 15,000 towers.
Coming to Net Debt figures, Vodafone Idea's figure is 10% lower than that of Bharti Airtel. But still the former's Interest Cost is 25% higher than that of the latter. Surprising, isn't it? It's clear that Bharti Airtel has raised Debt from lower cost sources compared to Vodafone Idea. Considering the current situation where world over the Central Banks are cutting rates to boost liquidity in the markets, Vodafone Idea can look for swapping it's higher-cost debt with lower cost ones. This can translate to substantial savings in terms of Quarterly Interest Cost & them help take on more Debt for it's AGR dues payout that will have to happen sometime soon. Let's hope to see some progress on this front too in the next couple of quarters.
Coming to Depreciation figures, it includes Depreciation provisioning for CAPEX done as well as the Lease rentals paid to Tower companies. With Vodafone Idea expected to exit duplicate tenancies from another 15,000 towers over the next 2 or 3 of quarters, we can expect reduction in Depreciation figures for the company progressively over the next 2 to 4 quarters. This will help bring down the % comparison figure with that Bharti Airtel, which currently stands at about 85%.
What should be the Valuation Comparison now & in coming Quarters: Considering all the negatives from this comparison for Vodafone Idea, like lower EBITDA %, higher Interest Cost, potential of significant jump in Debt post AGR issue closure, I think Vodafone Idea deserves a Market Cap of around 8 to 10% of Bharti Airtel, which currently stands at Rs.2,73,870 crores. That means Vodafone Idea's Market Cap should be (as per my estimates) between Rs.22K to 27K crores, translating into a share price of around Rs.7.80 to Rs.9.60. That means Vodafone Idea is currently trading at nearly half of my estimated value, in comparison to Bharti Airtel's value. If Vodafone Idea makes decent progress in the coming quarters on the above discussed parameters, in comparison with Bharti Airtel's respective figures, I will certainly push up the Market Cap % range for Vodafone Idea, compared to that of Bharti Airtel. I will try to present the above Comparison Table after the Results declaration for every quarter for both companies so that we can check if Vodafone Idea is making any progress or not in comparison to Bharti Airtel's performance.
Both Vodafone Idea & Bharti Airtel are telecom service providers and compete in the Indian Mobile Services market are mostly the only things common between them. Beyond that there are a lot of differences. While Vodafone Idea is primarily a Mobile Service provider with a very small scale Wireline/Broadband operation in India and has some stake in Indus Towers. That's it. On the other hand, Bharti Airtel has several business verticals: Firstly, it is a Mobile Service Provider in 18 countries in Asia & South Africa, with India forming nearly 75% of it's Customer Base. But apart from that, Bharti Airtel is a significant player in Wireline/Broadband, Direct-to-Home & Payment Bank services in India. Hence Bharti Airtel certainly deserves some premium for it's diversification into more markets for Mobile Services & into more services in India. It's Indian Mobile Services business contributes nearly 50% of it's Consolidated Revenues, as of #Q3FY20. This share is set to increase from #Q4FY20 onwards because of the tariff hikes effected from December'19 by the entire Indian Mobile Services industry.
Coming to Net Debt figures, Vodafone Idea's figure is 10% lower than that of Bharti Airtel. But still the former's Interest Cost is 25% higher than that of the latter. Surprising, isn't it? It's clear that Bharti Airtel has raised Debt from lower cost sources compared to Vodafone Idea. Considering the current situation where world over the Central Banks are cutting rates to boost liquidity in the markets, Vodafone Idea can look for swapping it's higher-cost debt with lower cost ones. This can translate to substantial savings in terms of Quarterly Interest Cost & them help take on more Debt for it's AGR dues payout that will have to happen sometime soon. Let's hope to see some progress on this front too in the next couple of quarters.
Coming to Depreciation figures, it includes Depreciation provisioning for CAPEX done as well as the Lease rentals paid to Tower companies. With Vodafone Idea expected to exit duplicate tenancies from another 15,000 towers over the next 2 or 3 of quarters, we can expect reduction in Depreciation figures for the company progressively over the next 2 to 4 quarters. This will help bring down the % comparison figure with that Bharti Airtel, which currently stands at about 85%.
What should be the Valuation Comparison now & in coming Quarters: Considering all the negatives from this comparison for Vodafone Idea, like lower EBITDA %, higher Interest Cost, potential of significant jump in Debt post AGR issue closure, I think Vodafone Idea deserves a Market Cap of around 8 to 10% of Bharti Airtel, which currently stands at Rs.2,73,870 crores. That means Vodafone Idea's Market Cap should be (as per my estimates) between Rs.22K to 27K crores, translating into a share price of around Rs.7.80 to Rs.9.60. That means Vodafone Idea is currently trading at nearly half of my estimated value, in comparison to Bharti Airtel's value. If Vodafone Idea makes decent progress in the coming quarters on the above discussed parameters, in comparison with Bharti Airtel's respective figures, I will certainly push up the Market Cap % range for Vodafone Idea, compared to that of Bharti Airtel. I will try to present the above Comparison Table after the Results declaration for every quarter for both companies so that we can check if Vodafone Idea is making any progress or not in comparison to Bharti Airtel's performance.
No comments:
Post a Comment