Telecom stocks such as Vodafone Idea and Bharti Airtel surged up to 24 percent in the morning trade, pushing their sectoral indices higher on December 2, following the companies’ decision to raise tariffs for prepaid voice and data services.
Three of the country's largest telecom operators-- Vodafone Idea, Bharti Airtel and Reliance Jio-- announced a hike of up to 40 percent in their tariffs for prepaid customers.
The price hike was broadly expected as telecom firms have been facing an acute financial crunch.
Vodafone Idea and Bharti Airtel had in November reported a cumulative loss of about Rs 74,000 crore for the September quarter on account of liability arising out of the Supreme Court's order in the adjusted gross revenue (AGR) case.
Most brokerages find the price hike better-than-expected.
Bank of America Merrill Lynch (BofAML) said the price hike by Vodafone Idea and Bharti Airtel is better than the expectations and expects more tariff hikes to follow.
BofAML considers Bharti Airtel and Reliance Industries as better names that benefit from tariff hikes. The foreign financial firm has buy ratings on Bharti Airtel and Reliance Industries and said that AGR overhang does not make Vodafone Idea risk-reward favourable.
Credit Suisse said Bharti Airtel’s and Voda Idea’s tariff hikes in-line with estimates. The brokerage is constructive on Bharti Airtel, saying the company is well-positioned to capitalise on pricing recovery.
Credit Suisse has a neutral view on Vodafone Idea. It highlighted that the company would need another round of capital infusion by FY23.
Credit Suisse expects more tariff increases over the next 12-18 months and believes Bharti's and Vodafone Idea’s Q4 EBITDA may increase by 15 percent & 54 percent quarter-on-quarter (QoQ).
"We are factoring in a cumulative 55 percent ARPU increase by FY22. For FY21, building In 29 percent and 49 percent year-on-year (YoY) growth in EBITDA respectively," Credit Suisse said.
Brokerage firm Kotak Securities underscored that both Vodafone Idea and Bharti Airtel have kept a big gap in data offerings of entry-level and popular bundled plans to address the issue of potential down-trading.
"Down-trading would mean leaving a lot of value on the table while up-trading would offer significant incremental value. This should help move the belly of the smartphone ARPU curve to the right, in our view – a critical component of a sustainable ARPU uplift," Kotak Securities said.
"Assuming stable subscriber mix for Vodafone Idea and Bharti Airtel, an ARPU increase of Rs 25-30 from these price hikes (assuming some down-trading), incremental EBITDA for the two companies works out to Rs 8,000-9,500 crore and Rs 7,000-8,500 crore, respectively."
Kotak has a cautious view on the stock and said it awaits full details of Jio’s plans to assess the incremental math for the company, assess the relative price and value equation post the price hikes and take a call on likely subscriber share shifts and pace of LTE adoption.
Around 1140 hours, the BSE Telecom index was 6.79 percent up at 1,192, with 12 stocks in the green and only one - Optiemus Infracom (down 5 percent) - in the red.
Shares of Vodafone Idea was 21 percent up at that time, while those of Bharti Airtel, Reliance Communications and Bharti Infratel were 7.39 percent, 4.94 percent and 2.28 percent up, respectively.
Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol advises users to check with certified experts before taking any investment decisions.
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