The impact on ARPU
The hike will help in improving revenues and the average revenue per user (ARPUs) of both companies. For the quarter ending September 30, 2021 (Q2FY22), Bharti and Vodafone Idea’s ARPU stood at Rs 153 and Rs 109.
ICICI Securities estimates Bharti’s ARPU to increase by Rs 26 to Rs 179. Vodafone Idea’s ARPU should increase by Rs 18 to Rs 127.
“(Bharti’s) Q2FY22 annualised consolidated EBITDA stood at Rs 55200 crore and the tariff hike should add 12.6 percent to it,” ICICI Securities’ analysts said in a report on November 24.
According to the brokerage firm, Vodafone Idea’s Q2FY22 annualised consolidated EBITDA stood at Rs 15,500 crore and the hike should add 25 percent to it.
EBITDA is earnings before interest, tax, depreciation and amortization. It is an important profitability metric for companies.
Will this be enough for Vodafone Idea?
Vodafone Idea is the most vulnerable of the three large private telecom firms in India because of its enormous debt and loss of market share to Reliance Jio and Bharti. The recovery path remains challenging for Vodafone Idea.
The hike will help improve Vodafone Idea's cash flows and also help in its fund-raising efforts.
Having said that, the extent of improvement in EBITDA needs to be monitored as the December 2019 hike did not provide the expected boost to the company.
“The estimated EBITDA increase runs the risk of significant EBITDA dilution due to market share loss,” wrote analysts from Motilal Oswal Financial Services Ltd in a report on November 23.
The brokerage firm said the continued market share loss and subscriber churn could potentially derail the cash generation similar to the previous hike.
“In order to stabilise earnings, VIL needs large funding to significantly accelerate its current network investment of Rs 5000 crore, which is much lower than Bharti/ Reliance Jio’s Rs 15,000-20,000 crore annual India capex, despite their far deeper 4G network,” it said.
IIFL Securities estimates Q2FY22 revenue market share of Jio at 41 percent, Bharti 36 percent and Vodafone Idea at 19 percent.
The government has in September announced a relief package, ensuring a three-private firms market in India, for now.
The moratorium on adjusted gross revenue (AGR) and spectrum is estimated to offer annual cash flow relief of about Rs 24,000 crore, say analysts.
As of September 30, Vodafone Idea’s cash and cash equivalents stood at around Rs 250 crore and it had a net debt of Rs 1,94,530 crore.
All eyes are now on Jio. If and when Jio goes for a hike, analysts expect it to maintain its tariff discount to Bharti and Vodafone Idea.
“Jio is yet to announce any pricing interventions but we see a reasonable chance of Jio taking about 20 percent price increases, which would preserve its discount to Bharti’s plans at 15-20 percent,” an IIFL Securities report said on November 23.
A tariff hike would boost Jio’s revenue growth and also augur well for the telecom sector. But, if Jio does not raise tariffs, there could be potential subscriber churn, which would be a negative development for Bharti and Vodafone Idea.
As things stand, shares of Bharti Airtel touched a new 52-week high on the National Stock Exchange on November 25. This calendar year, the stock has appreciated 48 percent, suggesting investors are factoring a good portion of the near-term positive news flow. On the other hand, Vodafone Idea’s shares have remained flattish during the period.
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