Telecom stocks get positive signals from market players

Rajesh Kurup Mumbai | Updated on December 02, 2019 Published on December 02, 2019

Representative image   -  Bloomberg

‘Tariff hike’ notably higher’ than expected: Analysts

Shares of telecommunication companies have been gaining after they announced plans to increase the cost of subscriptions to their customers.

Vodafone Idea (VIL) surged 14 per cent at ₹7.79 on the BSE on Monday, Bharti Airtel gained 3.67 per cent at ₹458.55 and Reliance Industries, which control the unlisted telecom unit Jio, rose 2.28 per cent at ₹1,586.3. In the last one month, VIL has jumped 81.16 per cent, Bharti Airtel 22.6 per cent and RIL 8.9 per cent.

VIL and Bharti Airtel have raised tariffs of their popular bundled prepaid plans by 25-41 per cent as well as the low-end plans by around 40 per cent. RJio has indicated hikes of a similar magnitude but its details are yet to be known. VIL also announced a new pricing plan for prepaid customers on Sunday, which would be effective December 3.

The tariff hikes announced by telecom companies on Sunday were “significantly higher” than expectations and are positive for companies’ share prices. The industry was expecting an across-the-board hike of 10-12 per cent.

Even as telecom firms are expected to benefit from the rise in tariffs, the brokerage firms expect more hikes to follow.

“The magnitude of the pre-paid unlimited plans, which was higher by about 22 per cent on average versus existing 28-day plans and 33 per cent on average for 84-day plans, was a surprise,” Goldman Sachs said in a report. “We note that these plans are largely targeted at feature phone users, and we were not expecting any tariff hikes for this segment,” it said. Following the announcement, the annual EBITDA of telecom companies could go up by $1 billion, the brokerage firm added.

READ THE STORY: Airtel, Vodafone Idea to hike tariffs to hike tariffs from December 1

“As all telcos are looking to raise tariffs at almost the same magnitude, we do not see any negative elasticity impact. In the past, we saw negative elasticity as consumers had the option to switch to other telcos,” Bank of America Merrill Lynch said in its note to clients. The brokerage firm, which expected more tariff hikes to follow, considers Bharti Airtel and Reliance Jio Infocomm (Reliance Industries) to benefit from the tariff hikes.

On Sunday, RJio said it will take a call on hiking rates but did not divulge the quantum of increase.

“Similar to incumbents, we think only select packs will have 40 per cent increase but popular ones could have 25-30 per cent. We think, the incremental 300 per cent benefit, which RJio is talking about, is by offering more data allowances,” said BofA.

It added, “Even after these hikes, we believe Jio will continue to be 15-20 per cent cheaper than the incumbent operators.”

“An average revenue per user (ARPU) increase of ₹25-30 from these price hikes (assuming some down-trading) and incremental EBITDA for the two companies work out to ₹8,000-9,500 crore and ₹7,000-8,500 crore, respectively,” said Kotak Institutional Equities Research in a note.

Revival possibility

Edelweiss Research in a note said: “The price hike is a major positive and will accelerate industry revival.” It is imperative for Bharti and Idea to ramp up 4G subscriber additions to sustain revenue market shares, it added while maintaining ‘buy’ on Bharti with a target price of ₹425 and kept Idea still ‘under review’.

Bharti and VIL have strategised the plans to restrict down-trading as both have discontinued their existing 1GB/day plans, said Emkay Global. “Over the next few days, we expect Bharti and VIL to announce tariff changes in their postpaid plans as well,” it added. Emkay recommended a ‘buy’ call on Bharti Airtel and VIL with a price target of ₹507 and ₹8, respectively.

ALSO READ: Bharti Airtel seeks to raise $3 billion to fund AGR dues

Published on December 02, 2019
This article is closed for comments.
Please Email the Editor