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Event update: Telecom - Aircel's bankruptcy filing further opens up market share

Event

Aircel has filed an application under Section 10 of the Insolvency and Bankruptcy Code, for undertaking corporate insolvency resolution process. Telecom sector continues to see rapid consolidation of operators and Aircel’s filing for bankruptcy opens up opportunity for market share gain. While this isn’t a formal shutdown or liquidation yet, we believe that market share shift from Aircel towards incumbents, particularly Bharti Airtel, should accelerate.

Aircel – Revenue market share of 3.5% with ~85mn subs

Aircel has a subscriber base of 84.8m as of Dec-17 with annual revenues of Rs59.4bn (Dec17 annualised) at an implied ARPU of Rs58. Aircel has gross revenue market share (RMS) of 3.5% on an all India basis. While Aircel has already been winding down their operations in marginal circles, we do note that certain circles they still have fair amount of market share - Tamil Nadu (14.1% RMS), J&K (15.9% RMS), North East(15.4% RMS) and Assam(18.7% RMS).  

Circle analysis – Bharti market leader in most of Aircel’s key revenue circles

Our circle specific analysis of Aircel suggests Bharti Airtel is the leader in most of Aircel’s key circles. Aircel derives 63% of its revenues from 5 circles (Tamil Nadu – 31%, Assam – 9%, Bihar/Mumbai/Delhi - ~8% each).Of these 5 circles, Airtel is the market leader in 4 (except Mumbai). Incidentally Bharti Airtel has been gaining market share in Mumbai where the gap with Vodafone has narrowed. We believe that given the low ARPU of Aircel users, it is either a secondary SIM usage or is a pure voice subscriber. Thus we do think that consolidation should be accretive for Bharti Airtel.

Consolidation in the sector continues

We have already seen consolidation in the sector with exit of RCOM and acquisition of Tata Teleservices and Telenor by Bharti Airtel. Aircel bankruptcy filing will limit their ability to invest in the network and opens up room for further consolidation. While the current pricing scenario remains hyper competitive, one must not lose sight of accelerating consolidation which continues to improve long term industry structure in favour of stronger incumbents. We do expect Bharti Airtel to benefit from on-going consolidation given stronger balance sheet and step up in network investments. Further we note that Bharti Airtel is taking steps to de-lever the balance sheet and recent share price correction in Airtel is an opportunity to accumulate.