New Delhi: While Reliance Jio Infocomm Ltd has been making all the moves in the marketplace to grab customers with its cut-price offers, investors have stayed buoyant about its main rival and telecom market leader, Bharti Airtel Ltd.

Bharti Airtel’s share price has gained 38% year-to-date, outperforming the BSE Sensex’s 16% gain with a promise of even better times to come.

Stock analysts have stayed bullish on the firm and despite this outperformance, analysts see a further 16% gain over a 12-month period, which indicates an upswing in its earnings on expectations that Reliance Jio will have to slowly raise its pricing and end promotions by the end of this fiscal.

They also expect Bharti to benefit from SIM card consolidation due to a shift from stand alone packs to bundled products. Consolidation among telecom operators offers Airtel an opportunity to increase its market share. “We believe earnings visibility for Bharti is a lot better now, with the industry approaching the end of severe competitive intensity. We believe most negative catalysts for Bharti are behind us (the last big one being Reliance Jio Phone launch), and expect revenue growth and margins to start picking up. We, thus, argue Bharti should indeed trade at a higher multiple vs its recent history," Manish Adukia and Piyush Mubayi, analysts at Goldman Sachs Global Investment Research, said in a report, titled Winter is receding. They revised the target price for Bharti Airtel to Rs487 and recommended a buy on the stock, which closed at Rs409.50 on Monday.

We believe most negative catalysts for Bharti Airtel are behind us (the last big one being the Reliance Jio Phone launch), and expect revenue growth and margins to start picking up. We, thus, argue Bharti Airtel should indeed trade at a higher multiple vs its recent history- Manish Adukia and Piyush Mubayi, Goldman Sachs Global Investment Research

Of the 34 brokers tracking the Airtel stock on Bloomberg, as many as 15 recommended a buy rating, 11 asked its investors to sell the stock and eight have a hold rating.

“Jio has started to raise its effective prices, and this bodes well for incumbents; we believe the wireless telecom industry is at the tail end of a period of severe competition and forecast Bharti’s wireless Ebitda to grow at a 14% CAGR (compound annual growth rate) in the next two years," Adukia and Mubayi said.

Ravi Menon, an analyst at Elara Capital, has a more technical view on Reliance Jio’s impact waning. In a note on 8 August, he said it is obvious that running a pure 4G network will result in lower operating cost than a mix of 2G, 3G and 4G. However, the cost advantage may be minor, with the new rollout strategy being adopted by incumbents such as Vodafone that are choosing to deploy 4G long term-evolution (LTE) technology by installing new single radio access network (SRAN). Vodafone has already used the SingleRAN deployment strategy for rolling out 4G LTE in Europe and has found this providing lower total cost of ownership.

“So Reliance Jio’s cost advantage may not last long and its lead in fibre-optic rollout could also be under threat as India’s experience with last-mile, fibre-optic deployment suggests a lifespan of 5-7 years due to frequent fibre cuts vs 20-25 in developed countries, and Reliance Jio’s initial fibre rollout areas will soon need to be replaced, given that the rollout started over 2010-12," Menon said.

He also compared Jio’s operations with that of Telenor when it first entered the Indian market.

“Similar to Telenor (Uninor’s Norwegian parent firm), Reliance Industries, Reliance Jio’s parent, has the ability to support pivots in Reliance Jio’s strategy until it succeeds because it has other revenue streams. But like Telenor, we believe shareholder pressure will force Reliance Industries to accept market realities at some point and be content with less than the leadership position it is targeting currently," Menon wrote in an 8 August note.

Of course, Reliance Jio’s subscriber market share gains have been significantly higher than that of Uninor.

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