Telecom tariff hike of 20% likely in 2024, post elections, says BofA Securities

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New Delhi: Indian telecom service providers are likely to raise tariffs by a significant 20% after the general elections, likely to be held in April-May, said Bank of America Securities in a recent report. It has upgraded Bharti Airtel’s ratings to neutral from underperform, citing potential benefits from the tariff increases, which are expected after a two-year hiatus.

“After more than 2 years (last major hike: Dec-21), we expect a c20%+ tariff hike in CY24. This is likely after general elections and would be needed to help improve the health of industry especially Vodafone Idea,” said analysts at the brokerage house.

The analysts believe that the extent of the tariff hike might take the market by surprise and consider Bharti Airtel to be in the most advantageous position among Indian telecom operators to leverage this hike, given its larger base of high-end users.

Shares of Bharti Airtel hit a 52-week high of 1,069 on in early deals today following the report.

The American brokerage said that telecom carriers could see greater overall benefits if Reliance Industries considers listing Reliance Jio, and if Airtel opts to list or sell equity in its data centre and payments bank businesses, thereby unlocking value.

For the quarter ended December 2023, Airtel, Vodafone Idea, and Reliance Jio are expected to report steady financials. Revenue growth could reach up to 3%, with earnings before interest, tax, depreciation, and amortization (Ebitda) margins remaining flat compared to the previous quarter.

A key profitability indicator, the average revenue per user (ARPU), is expected to rise for all telecom companies. Vodafone Idea may see the most significant increase – about 2.5% according to brokerage JM Financial – attributed to a more favourable mix of 4G subscribers, despite an overall drop in subscriber count. Jio’s ARPU is projected to climb 0.8% to 183, while Airtel’s may see a 1.5% sequential increase to 206.

“We expect a structural uptrend in industry ARPU (9% CAGR over FY24-28) driven by future investment needs – the industry requires an ARPU of INR 270-300 in the next 3-5 years for a pre-tax RoCE of 12-15% to justify capex,” said analysts at JM Financial.

Analysts at Bank of America Securities also noted that market share gains are likely to continue, favouring Jio and Airtel, thanks to their ramped-up 5G services and increased capital expenditure. Another potential boost could come from the fixed wireless access (FWA) business, which is expected to heighten data demand and increase broadband customer numbers for telecom operators.

Sector analysts at Emkay highlighted that Vodafone Idea is facing ongoing subscriber losses and delays in securing external funding. The company aims to raise 20,000 crore from external investors through a combination of debt and equity. While talks are underway with three potential partners, a deal is yet to be finalized. This lack of capital is hindering Vodafone Idea’s 5G rollout plans.

“Vodafone Idea’s weak financial condition is also impacting Indus Towers, despite the benefit from the 5G rollout by Bharti Airtel and Jio. We continue to prefer Bharti Airtel and RJio in the telecom space,” the agency said.

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Pooja Gupta

CA Pooja Gupta (CA, ISA, having 15 years of experience. Educator and Digital Creator

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CA Pooja Gupta (CA, ISA, having 15 years of experience. Educator and Digital Creator

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