Airtel, Jio tariff hikes: Is the telecom sector ripe for rerating? Experts weigh in

Shares of Reliance Industries and Bharti Airtel deed their caller all-time highs successful intraday commercialized connected Friday, 28 June, indicating investors' affirmative absorption to the tariff hike reports.

Industry experts anticipated tariff hikes pursuing the Lok Sabha elections owed to declining gross and margins successful the sector. Companies necessitate superior to put successful spectrum and cutting-edge technologies.

Experts judge the tariff hikes are a affirmative measurement and volition augur good for banal prices. The assemblage could beryllium ripe for re-rating.

"The Indian telecom assemblage is ripe for a re-rating owed to a unsocial operation of factors. With conscionable 3 large players—Bharti Airtel, Reliance Jio, and Vodafone Idea—controlling the large market, adjacent insignificant re-ratings successful ARPU tin importantly interaction their banal prices," said Trivesh D, Tradejini.

"Looking ahead, palmy spectrum bidding, implementation of tariff hikes, and continued subscriber basal maturation tin each beryllium catalysts for a rerating. As the assemblage consolidates and becomes much efficient, the marketplace volition apt recognise this done a re-rating, perchance starring to higher valuations and amended returns for investors," said Trivesh.

With elections implicit and spectrum auctions over, telecom companies person hiked tariffs by 20-25 per cent.

After Reliance Jio raised the prices of its existing monthly and yearly plans, Bharti Airtel decided to summation mobile tariffs by 10 per cent to 21 per cent. The revised tariffs of some the companies volition beryllium effectual from July 3.

Prashanth Tapse, Senior VP Research Analyst astatine Mehta Equities, pointed retired that the manufacture was waiting for elections and decided to rise tariffs successful the scope of astir 10-25 per cent, which is the request of the hr for each telecom players to prolong successful the rising capex space.

The telecom assemblage has been the astir talked astir assemblage successful caller months, amplifying integer maturation successful India​and making it the 2nd largest globally, with a subscriber basal of 1.091 cardinal arsenic of Apr 2024.

Tapse observed that aft 2021, the manufacture continued to endure unit connected precocious costs owed to debased ARPU, and they could not adjacent rise and revise the tariffs for aggregate reasons, which led to level maturation successful the sector.

The spectrum bidding saw a tepid response.

As Mint reported, India’s spectrum auction ended connected June 26, Wednesday, with the authorities collecting ₹11,340.78 crore—the 3rd lowest since competitory bidding began successful 2010—from selling 141.4 units of airwaves.

However, contempt the muted effect to the auction, experts stay optimistic and spot the imaginable for re-rating opportunities successful the assemblage owed to tariff hikes.

"Despite the muted effect successful the auction, we proceed to stay optimistic and spot the imaginable for re-rating opportunities successful the sector, chiefly connected the backs of players benefiting from agelong pending tariff hikes," said Tapse.

"The manufacture has planned consequent hikes each 2 years, which tin boost its gross growth. In this space, we are fundamentally bullish connected Bharti Airtel with a people terms of ₹1,750 for the adjacent 9-12 months, and connected a high-risk instrumentality counter, we spot Vodafone Idea tin besides execute with a people of ₹22-24 for the adjacent 9-12 months," Tapse said.

Ankit Jain, Vice President and Sector Head - Corporate Ratings, ICRA Limited, underscored that the latest circular of tariff hikes volition supply traction successful the ARPU and tin effect successful further operating profits of astir ₹20,000 crore for the manufacture erstwhile these hikes are afloat absorbed.

This volition effect successful accrued nett generation, thereby providing headroom for the manufacture to undertake deleveraging and money capex for the exertion upgrade and web expansion.

ICRA expects the manufacture revenues to turn by 12-14 per cent successful FY25, which, fixed the operating leverage, is apt to construe into steadfast enlargement successful operating profits by 14-16 per cent. This, successful turn, volition apt amended manufacture ROCE (return connected superior employed) to much than 10 per cent for FY2025.

ICRA besides expects the manufacture to study ₹3.2-3.3 lakh crore successful gross with operating profits of ₹1.6-1.7 lakh crore successful FY25.

"The betterment successful operating profits coupled with the muted information successful the latest spectrum auctions and expected moderation successful the capex intensity, the indebtedness levels are expected to mean to astir ₹6.2-6.3 lakh crore arsenic of March 31, 2025, with an anticipation of further diminution going forward. This volition apt effect successful a dependable betterment successful indebtedness metrics, with manufacture debt/OPBDITA astatine 3.7-3.9 times and involvement sum astatine 3.1-3.3 times for FY2025," ICRA observed.

Disclaimer: The views and recommendations supra are those of idiosyncratic analysts, experts, and brokerage firms, not Mint. We counsel investors to consult certified experts earlier making immoderate concern decisions.

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Published: 28 Jun 2024, 03:15 PM IST