Telcos moving to ARPU model from data realisation: Phillip Cap

Anuj: Bharti Airtel is it offering good risk reward now or do you see more de-rating for telecom stocks?

A: From a de-rating perspective, I think the sector has already de-rated, so if you look at in terms of valuations the stock is trading in the range of around 5.8-5.9 times EV-EBITDA on FY18. What is the risk to the EBITDA numbers is little bit of question mark at this point in time because the offers are still not clear and the impact of offers is still not clear and it will take time for that to unravel.

However, I would say that strategy clearly is to gain market share which is a big positive and the kind of aggressive stance that Bharti has taken it is very clear that they are not going to lose out on market share in the next one to two years and more likely they will be gaining market share.

So, that is a big positive which is emerging, so that offers respite in terms of valuations to sustain and more likely I don’t see much of de-rating from these levels. I would say that these levels settles let say around Rs 300 odd levels pretty much lot of negatives are factored in to the price.

Sonia: The data pricing for Bharti has fallen significantly over the last six to seven quarters. How much do you think it could get hit further, data realisations etc in the near-term?

A: Data realisations are going to heads out that is very clear, but I think the more important factor on which I think telecom operators are going to be focused on the model seems to be changing very clearly. It is moving from a realisation based model to more of an average revenue per user (ARPU) based model. So, what one can extract from a consumer or what one is able to gather from a consumer is going to be more relevant than the realisation numbers.

Let us say the correct ARPU is in the range of around Rs 190-200, if we are able to sustain that ARPU or probably a little higher ARPU introducing higher pack so let us say Rs 250-300 you give a greater amount of data bundle offer for the customer which will help the customer to increase his usage, so that is going to be clearly the way ahead. Because all the telecom operators rather Bharti and Jio clearly have lot of capacities that they have built up. It is all about capacity utilisation from here on and about extracting a higher ARPU from customers.Latha: You must expect that there will be counter offer from Rel Jio, because this one goes all the way to December 31. If a counter offer were to come and take rates wherever more free GBs of data then do you think that is in the price? A: Again it is free versus free and how much more free, so difficult to figure out what could be the counter to something like this. Latha: We thought that when there was Rs 1 per minute, but it went to all the way lower. Nanoseconds were counted. You cannot put a stop to competition.A: From the current perspective I feel that tariffs are pretty much at a bottom when it is zero, right. So, from that perspective it is not much of south from there. However, I don’t see that the counter offers are going to make a huge debt in what is going to happen from here on is what my sense is because we are pretty much at the lower end. Now it is all about how to bundle packagers and attract customers and gain market share that is going to be the whole strategy is what we can see evolving.