Tariff hike not sufficient for Voda Idea, credit positive for Bharti: Nitin Soni, Fitch Ratings
This is a very credit positive move for Bharti because this is the first-ever tariff hike we have seen in the last 15-20 years.
What are you making of the tariff hike by the telecom companies?Are they now going to see some stability now?
From the announcement of Bharti, Vodafone-Idea and Jio, it seems the effective tariff increase is 25-35%. The actual tariff hike will depend on the preference of users on whether they go with the higher data allocation or they want to pay higher tariff over the short to medium term. This was much needed for the incumbents to lead to a recovery of their revenue and EBITDA and it was a much needed tariff hike, especially for Vodafone-Idea which has been struggling in the market to recover its EBITDA generation and manage a shrinking subscriber base and limited financial flexibility to invest in capex.
On Bharti, we have a BBB minus rating which is on rating watch negative and we believe equity issuance, tariff increase, the two-year moratorium on the spectrum liabilities which has already been announced by the government -- all these pay conditions need to be fulfilled to stabilise the outlook on Bharti.
While the hikes are more or less on expected lines, are these enough for market or rather balance sheet repair? Would more hikes be required in the coming months?
We will have to look at each of these telecom companies case by case. For Vodafone Idea, which is really struggling to improve cash generation, this tariff hike may not be sufficient given their last quarterly EBITDA was only Rs 10 billion and they have substantial liabilities on their balance sheet. If they were to pay the AGR dues in the next three months as per the Supreme Court order, even a 35% plus tariff increase may not be sufficient. But in the case of Bharti Airtel, it is sufficient. This is a very credit positive move for Bharti because this is the first-ever tariff hike we have seen in the last 15-20 years. Now, we will have to look at whether it remains on a sustainable basis or not or if the effective average revenue per user increment goes higher by 25-35%. The other aspect to monitor is whether they retain their subscriber base or not.