Jefferies expects telecom to be under pressure for 12 months; likes Bharti Airtel

In a falling market, one of the sectors to have fallen the most is the telecom space. The BSE Telecom index has fallen around 17 percent on a year to date basis

Jefferies expects the sector’s profitability to remain under pressure for another 12 months. It expects improvement from Mid-FY20e, when share for top-three stabilises.

At this point, it said, consumer willingness to pay higher for similar service is low and valuations are factoring in best case now. Jio's ARPU discount is also at its target level, limiting price hikes.

Overall, it sees industry revenue to decline 5% over next 12 months, while mid term revenue CAGR of 15 percent may be seen.

Among stocks, it believes that Bharti Airtel is well placed to face competitive threat to various businesses and is forecasting 110 basis points margin drop over FY18-20. The brokerage has assumed coverage on the stock.

Additionally, on Idea Cellular, it sees further downside with a target of Rs 68. It is anticipating substantial market share losses.

It has also assumed coverage on Bharti Infratel with a target of Rs 300. It expects medium term pressure on the firm.