Telecom tariff hike positive for Airtel; Voda Idea under a cloud
The hikes have been the first in the industry since 2016, and steeper than Street estimates.
The hikes have been the first in the industry since 2016, and steeper than Street estimates. The tariff hikes would give a Rs 25-30 boost to the telecom players’ average revenue per user (ARPU).
However, analysts doubted if the hike is sufficient for Vodafone Idea. All eyes will be on how peer Jio comes out with bundles, which is seen as the biggest beneficiary of the fresh developments.
So far Jio has announced up to 40 per cent higher tariff, but claims it would provide up to 300 per cent more benefits than competitors.
“The tariff hikes are higher than what the Street was expecting. In spite of the higher hikes, most of the money will go to the government. It is good for the government fiscal deficit number and for the banks that lent to the sector, but there will be very little free cash flow left with the players, apart from Jio. So, Jio will be the net beneficiary in terms of cash,” Prateek Agarwal of ASK Investment Manager told ETNow.
Industry watchers says hike could be sufficient for Bharti Airtel, but may not be so for Vodafone Idea.
“For Vodafone Idea, which is really struggling to improve cash generation, this tariff hike may not be sufficient enough. Its last quarter’s Ebitda was only Rs 1,000 crore and it has substantial liabilities on balance sheet. If it were to pay the AGR dues over next three months as per the Supreme Court order, even a 35 per cent-plus tariff increase may not be sufficient. It is sufficient for Bharti,,” said Nitin Soni of Fitch Ratings.
On Monday, shares of Bharti Airtel rose 9.82 per cent to hit a high of Rs 474 before closing at Rs 458. Shares of Vodafone Idea soared 23.57 per cent to hit a high of Rs 8.44, before closing at Rs 7.79.
The tariff hikes should yield a Rs 25-30 increase in blended ARPUs, good for an Ebitda uptick of Rs 8,000-9,500 crore for Vodafone Idea and Rs 7,000-8,500 crore for Bharti, said Kotak Securities,
“Jio’s announcement that it would raise pricing of its plans by as much as 40 per cent should allay Street’s skepticism on Jio’s participation in industry ARPU-revenue table uplift. That said, the fineprint of Jio’s new plans would critical to understand future subscriber trajectory for the three telcos. We are not quite sure yet what Jio means when it says that ‘Jio customers will get 300 per cent higher benefits’ under the revised plans,” the brokerage said.
Motilal Oswal Securities said the price hike on smartphone bundle plans is 30 per cent, implying a Rs 200 monthly spend on popular 1.5GB – three monthly plans.
“We expect market share loss for weaker players – Vodafone Idea – as this could also trigger SIM card consolidation and subsequently, subscriber churn. Bharti, on the other hand, could see lower operating leverage, but healthy FCF generation and improving balance sheet with robust a 50 per cent-plus potential upside,” it said.
Both Bharti and Vodafone Idea have also increased prices of their minimum recharge plans from Rs 35 and Rs 65 to Rs 49 and Rs 79, which should see 30 per cent increase in ARPU to Rs 53 from Rs 40 earlier.
Since the price increase would be effective from the next cycle, its effect would be reflecting over the next 1-3 months, particularly for the three-month bundled subscribers, Motilal Oswal Securities said.