Never miss a great news story!
Get instant notifications from Economic Times
AllowNot now

You can switch off notifications anytime using browser settings.
Stock Analysis, IPO, Mutual Funds, Bonds & More

Airtel, Voda Idea shares jump on tariff hike call

Bharti Airtel was up 7 per cent at the Tuesday close on the BSE. Vodafone Idea rose 35 per cent.

ET Bureau|
Nov 20, 2019, 07.37 AM IST
Getty Images
IUC is paid by the call-originating telco to the destination carrier.
Kolkata: Shares of Bharti Airtel and Vodafone Idea rose after both said they will raise tariffs in December, with some analysts expecting a minimum 15 per cent increase that will boost revenue and operating income at the loss-making telcos.

Bharti Airtel was up 7 per cent at the Tuesday close on the BSE. Vodafone Idea rose 35 per cent.

Goldman Sachs said in a note that the move was a “key catalyst investors had been waiting for to turn constructive on India telco stocks,” adding that the event could “make it easier for Vodafone Idea to raise capital in future.”

It expects the two mobile phone carriers to lift tariffs by 15 per cent at least, pegging FY21 Ebitda for Airtel’s wireless business at 57 per cent more than FY20. It estimates that of Vodafone Idea at 80 per cent higher. Ebitda is earnings before interest, taxes, depreciation and amortisation.

Credit Suisse expects Vodafone Idea and Airtel to offer more data and voice bundles with the tariff increases.

Vodafone Idea closed at Rs 6.02 while Bharti Airtel ended at Rs 439.25, having touched a 52-week high of Rs 445.45 intra-day.

Bank of America-Merrill Lynch doesn’t expect Reliance Jio Infocomm to raise tariffs in response. Jio’s recent tariff increase was “a one-off move in response to the expected IUC (interconnect usage charge) change, and (we) expect the telco not to take any hike till Vodafone Idea’s merger integration is completed likely by June 2020,” it said.

Analysts said the tariff hikes announced by the two carriers on Monday seem to have been driven by the recent Supreme Court order that backed the government’s stance of including noncore items in adjusted gross revenue (AGR). The top court’s October 24 ruling has left Vodafone Idea and Airtel facing nearly Rs 81,000 crore in dues, which they need to pay by January-end. This has forced them to make provisions, widening Vodafone Idea’s losses to a record Rs 50,921.9 crore in the September quarter, and Airtel’s to Rs 23,045 crore. Both have raised doubts about continuing as going concerns in the absence of government relief.

London-based New Street Research said the price rise moves by Vodafone Idea and Bharti Airtel seem “intended to put pressure on the government to give relief to the industry, if it wants to avoid hefty price increases in future.”

The brokerage estimates that Vodafone Idea needs price increases of 75 per cent to “survive, and would run out of money in three months if there is no change in the Supreme Court ruling” on AGR.

“A (potential) 15 per cent hike in headline ARPUs (average revenue per user) could partially address cash burn for Voda Idea and partially help Airtel meet AGR dues,” but it “may not be enough to revive capex,” according to Rajiv Sharma, research head at SBICap Securities. Government relief measures, he said, would “still be needed if the telcos are to continue to invest in 4G networks.”

Kotak Securities said the move by Vodafone Idea and Bharti Airtel suggests both expect an extension of the IUC regime.

The telecom regulator is slated to take a final call by the monthend on whether to postpone the scrapping of IUC from the planned January 2020 deadline.

“An extension (of IUC) would mean Jio does not roll back the price increases it took recently, which would mean increased degrees of freedom on pricing for Bharti and Vodafone Idea,” said Kotak. Jio recently started charging 6 paise a minute on calls made to other telcos’ networks and also removed some low-priced plans to boost operating performance. Jio, which had pledged free voice calls for life when it launched, said this was on account of the IUC.

IUC is paid by the call-originating telco to the destination carrier. Bharti Airtel and Vodafone Idea want the IUC to stay as they are net revenue gainers on this score, while Jio is a net payer. The latter wants it scrapped from January.

Also Read

Share market update: PSU shares slip; BHEL falls over 4%

Share market update: Media shares decline; Dish TV plunges 18%

Share market update: Telecom shares mixed; Bharti Infratel climbs 5%

Share market update: Power shares mixed; RInfra falls 4%

Share market update: Metal shares mixed; Coal India down 1%

Add Your Comments
Commenting feature is disabled in your country/region.
Download The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.

Other useful Links

Follow us on

Download et app

Copyright © 2019 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service