Airtel sprinting ahead of Jio in Q4 Result

Created on 22 May 2020

Wraps up in 4 Min

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Updated on 08 Sep 2020

Airtel sprinting ahead of Jio in Q4. And, a cursory view of BSE Ltd’s stock.
You would have surely heard the story of the tortoise and the hare in your childhood. The telecom companies have presented a slightly distorted form of it in the fourth quarter. Consider Airtel as the tortoise and Jio as the hare. Jio entered the market (just like hare entered the race) and made tremendous sprints. Jio completely disrupted the market and almost eliminated the competition. The tortoise (Airtel) however, kept looking along and remained perseverant. Then, came Quarter 4. While Jio was busy bagging investments from firms around the globe, Airtel was focusing on growing its market share. As a result, the Average Revenue Per User (ARPU) for Airtel grew by almost 20% in the last two quarters. While, ARPU for Jio grew only around 2% in the same period. Sequentially, Airtel’s Indian business grew by (approx.) 16% whereas Jio’s revenue grew only by 6%.

What Does This Mean?

This simply means that Airtel has secured massive market share gains against Jio in Q4. The recent increase in tariffs has not affected the company’s business much and the strong Q4 results show that the consumers have accepted the tariff hikes. On the other hand, tariff hike effects on Jio’s business might be visible with a lag. Besides this, Airtel has reported a positive EBIT in Q4. That’s the scenario for now. But, will Airtel continue to shine in the coming quarters and will Jio’s momentary backlog continue? We’ll have to wait and watch.

Stock Brief - Bombay Stock Exchange Limited (BSE Ltd.)

Whenever anybody has some extra money and wants to get good returns out of it. The first thing that comes to mind is to invest in the stock market and this can be done on one of the largest and oldest stock exchanges of the world, Bombay Stock Exchange (BSE). BSE Ltd started as a native share and stockbroker’s association but over the last few years, it has transformed itself into a universal exchange by adding services such as mutual fund platform, SME platform, currency and commodity derivatives, and trading of sovereign gold bonds to name a few. The company provides its services to capital market participants with its three primary business segments namely: 

Listing business: consists of primary market relating to the issuance of new securities

  • Market business: consists of the secondary market (trading of listed securities), BSE Star mutual fund platform, BSE SME, and membership (membership in Exchange, ICCL, CDSL) 

  • Data business: sale and licensing of information products

BSE is one of the world’s largest stock exchanges with the highest number of listed companies (5519). It has market leadership in blue ocean businesses including Star MF (75% market share), BSE SME (60%), BSE Bond (64%), and IndiaINX (84%). Also, it has established leadership in listing related businesses including listed securities (73%), currency derivatives (48%), and fixed income securities (37%). The BSE Index, SENSEX is the most established and popular stock market benchmark index that is composed of 30 stocks from 12 sectors.

Revenues are derived from various sources including securities services, services to corporate, data dissemination fees, investments, and deposits. Revenues earned are a function of volume and value of securities traded. Even in times of crisis such as currently ongoing coronavirus crises, many investors try to invest more because of reduced securities prices in search of better future returns further contributing to revenue. This business model with high operating leverage and strong cash flows help BSE Ltd. in sustaining for a longer-term. With the market capitalization of ₹ 2002.68 Crores, it is virtually debt-free and has consistently given dividends. Also, it has maintained return on Assets (ROA) of 11.15% (3Yr-CAGR) and operating profit margin of 47.17% (10Yr-CAGR).

What is good?

  • Strong entry barrier: The business requires huge initial investments and given the duopoly in the market, it becomes extremely difficult for a new player to enter.

  • State-of-the-art infrastructure and technology: Given the pace to current technological advancement, the reliability and consistency of IT infrastructure may help in maintaining a competitive position. It is one of the fastest exchanges in the world with a median response time of 6 microseconds.

  • Integrated business model and diversified revenue sources: Universal exchange providing a variety of services to market participants with multiple contact points generating revenue and thereby profits.

  • Market Leadership: BSE Star MF, an e-platform for 24X7 order acceptance with a unique overnight investment framework and only platform in the Indian mutual fund industry that supports all modes and types of schemes. It became India’s largest online MF distribution platform with 75% of market share.

What is Bad?

  • Uncertainty in revenue: It may be difficult to manage a large fixed nature of expenses because of uncertain operating income as a result of fluctuations in trading activities.

  • High competition: Competition from a broad range of market participants globally for listing, clearing, trading, and settlement volumes. BSE’s cash market share is under stress which is reduced to just 6.7% 2QFY20 from 12.9% in Q2FY18.

  • Security risks: Its outsourced products such as electronic trading platforms, networks, and software from third-party service providers may be vulnerable to security risks and cyber-attacks.

Regulatory challenges:
It is one of the highly regulated industry which requires several regulatory approvals for its operations. Any failure to renew permission and to comply with obligations promptly may result in huge penalties and sanctions.

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