The telecom sector in India is on fire these days. From tech giants like Amazon, Google and Facebook to large private equity firms like Silver Lake, Mubadala, Vista Equity Partners, General Atlantic and KKR, the one sector in which every company across the world wants to invest in currently is the telecom sector in India.
The latest to join the bandwagon is Bharti Airtel with media reports emerging on Friday that American multinational conglomerate, Amazon is planning to buy a stake in it. The alleged investment reports, if true, would translate to Amazon acquiring around 5 percent stake based on the current market value of Bharti Airtel.
The immediate impact of the news was seen in the stock with Bharti Airtel Share prices gaining as much as 2.93% to Rs. 590 on the BSE on Friday morning.
However, Bharti Airtel share prices lost some of its early gains after the company issued a clarification to the exchanges saying that "no such proposal is currently under consideration".
Why Amazon may be interested in buying a stake in Bharti Airtel Shares?
The telecom sector in India has seen a flurry of activities in the last two months with Mukesh Ambani’s Reliance Jio bagging multiple investments to within a short span of six weeks. Next came the news of tech giant Google’s planned investment in Vodafone Idea which the latter denied in a statement issued to BSE. Read more.
Despite intense competition from Reliance Jio, Bharti Airtel has managed to hold the fort and even staged a turnaround by raising required capital. This came even as multiple telecom companies perished over the last 4-5 years in India.
In an attempt to reduce its debt, promoters of the company had recently sold 152 million Bharti Airtel shares for about Rs. 8,500 crores in a block deal when the stock was at an all-time high. Airtel shares have risen sharply this month after it reported a massive jump in average revenue per user (ARPU) and revenues for the March quarter. This has also resulted in enormous market share gains as compared to Reliance Jio, whose average revenue per user grew only marginally.
Bharti Airtel is a strong player in the telecommunications sector in India, and its product offerings include cellular services, fixed line services, broadband, and enterprise services. Bharti Airtel also offers Digital TV Services, video-on-demand and m-Commerce services.
With digitization and work/shop from the home culture on the rise in India in a world post-Covid-19, by purchasing a stake in Bharti Airtel, the deal would help Amazon access Airtel's 300 million-strong subscriber base.
Should you invest in Bharti Airtel shares?
Bharti Airtel share prices have outperformed the market and have witnessed over 26% increase in the last one year.
From Rs. 353.80 on 6th June 2019, Bharti Airtel share prices have surged to a high of Rs. 584 on 5th June. However, this in no way implies that Bharti Airtel share prices may continue its uptrend in the near future.
The telecom sector in India is one sector where many heavyweights who once ruled the roost have bitten the dust. In 2005, Reliance Communications was the market leader. Today it is nowhere in the scene. Similarly, Reliance Jio was not there in the market before 2016, but in just four years, it has become the market leader. Vodafone Idea which also once ranked among the top players in the telecom industry in India, is now reeling under massive debt.
Irrespective of whether Amazon invests in Bharti Airtel or not, as an investor it is your duty to exercise due caution before investing your hard-earned money. Telecom sector is highly capital intensive and operates on thin margins. On top of this, any change in technology can change the fortunes of the operators like what happened in the case of Reliance Communications which continued with the outdated CDMA technology while other players raced ahead with 3G and 4G GSM technologies.
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