Hyper-Competition and its Effects

Several sectors in India are in a hyper-competition phase. Some examples are Telecom Operators, Passenger Airlines and Mobile Phone Hardware sectors. Investors need to stay away from firms in this phase. 

What is Hyper-competition? Let’s see some examples.

  • Telecom: In Feb 2013, the Supreme Court cancelled 122 telecom licenses in India. By Sept 2018, 5.5 years later, only 4 of 14-15 players survived. Given the high volumes and growing demand, it was expected that these 4 players would do well. However one player had different ideas. With its entry in Oct 2016, Reliance Jio aggressively grew market share by providing free voice and data, and later priced these services very low. Massively funded by strong group divisions, they created large 4G capacities, and soon stabilized networks and interconnectivity. The result? While mobile users and usage grew and Jio gained 30% revenue market share (Sept 2019), customer prices fell sharply, other industry players lost subscribers, degrew revenues and saw drops in profits.
    • In today’s scenario, while consumers and govt. are benefiting with low prices and high tax revenues and levies resp., network operators are under pressure on costs and profits. The 4 player structure should survive, and market shares may stabilize for all players, once prices correct. However this may take at least a year.
  • Airlines: Airlines are a difficult business due to high airplane costs (a duopoly), fluctuating crude prices (around 30-45% of costs) and govt. funded national airlines hiding losses. In India however the market has changed in 10 years from full service airlines to Low Cost Carrier (LCC) domination with Indigo, SpiceJet, GoAir and AirAsia growing market shares. Meanwhile the GoI plan is to double the number of airports to 250 from 102 currently. The market demand has grown 10.9% a year of Revenue Passenger Kilometers (RPK) over the last 9 years, while capacity has grown by 8.3% of Available Seat Kilometers (ASK) – DGCA data. Also two airlines failed in this time, Kingfisher Airlines and Jet Airways. Air India continues to operate as a loss making airline with govt. funding. Adjusted for inflation, there are flat to falling average ticket prices in a high capacity growth scenario. The current fleet in Indian aviation is 566 commercial aircraft, and the carriers plan to increase their fleet to 1,300 in 1-2 years.
    • One possible outlet for the capacity adds are international flights, and several airlines have global ambitions.
    • If good infra is set up, India can have a few successful global airlines, a good domestic MRO industry and even a large Indian airport hub for global fliers.
    • Domestic connectivity is underserved by the alternatives of railways and roadways, so we can expect airline growth to continue for many years.
    • Consumers and govt. are benefited but in this industry only very efficient firms can stay profitable.
  • Mobile phone hardware: India is the world’s fastest growing smartphone market.
    • The value, mid-segment as well as premium segment continue to grow at high single digits QoQ. The Indian consumers are now spoilt for choice. However 41 smart phone brands exited India in 2018 while 15 entered owing to good growth prospects. TCL, Comio, Datawind and ACER are the well-known brands that exited in 2018. Lychee and Sony are likely to exit in 2019.

jainmatrix investments, hyper competitionFig 1 – Smartphone entry-exits/ Fig 2 – Marketshare of top 5. Source: ET, News 18

    • From Fig 1 it is clear that smartphone player exits over the last 3 years have been much more than new entrants. Now there are some signs of consolidation with this market becoming an oligopoly with the winners continuing to gain market share (See Fig 2). However the market share gains have come at the cost of pricing power. Xiaomi Corp reported a 43.2 bn. yuan loss in 2017 and now the company has rebounded to profits in 2018. Competition is such that the Xiaomi India head had to justify pricing of few product models to its fans while capping the margin at 5%.
    • The Make in India program for electronics has been successful in attracting mobile assembly and manufacture to India for this industry. This was set up to cater to domestic demand, but policymakers would do well to channel manufacturers to make this a base for mobile exports. If this succeeds it would benefit all three – consumers, govt. and manufacturers.
  • Hyper competition is caused by very aggressive player(s) in a free market.
  • In a hyper competition scenario, the situation develops in the following way:
    1. The high competition causes loss of pricing power, and weakening of returns or ROE of current players. The smaller or higher cost players may get squeezed out, and fail or merge.
    2. Consumers benefit in terms of choices and low prices. The govt. too may gain in terms of taxes and levies.
    3. The threat of new entrants diminishes as the sector becomes unattractive.
    4. Market shares of top 2-3 current players soon stabilize and improve but timelines are unpredictable.
    5. With time, competitive intensity reduces and pricing power returns to the surviving players.


  • Investors need to recognize and stay away from hyper competitive sectors as most of the players suffer in this phase, profits fall and returns reduce. It’s possible to play these sectors through other means such as suppliers or consumer firms but that needs further analysis.
  • Once hyper competition ebbs away, the situation can reverse and surviving firms may see a multi-year profit and ROE rise.

Agree ? Any thoughts here? Provide your comments below ……..

Read related reports:

  1. Indigo Airlines
  2. A Telecom sector report (2014) 


This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Several firms are mentioned in this report, listed and unlisted, but we have not presented any investment thesis or specific recommendation. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an Investment Advisor. Punit Jain is a registered Research Analyst under SEBI (Research Analysts) Regulations, 2014. JM has been publishing equity research reports since Nov 2012. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com.


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