Leading telecom players, Bharti Airtel Ltd and Vodafone Idea Ltd, have hiked voice and data tariffs by up to 42% from December in order to build up profit and revenue. This is one of the biggest price hikes seen by the Indian telecom industry and is likely to considerably improve the financial health of the sector.
As such, the stocks of Bharti Airtel and Vodafone Idea have rallied 19% and 53%, respectively, in the past one month. Most of the brokerage firms have also revised their outlook or targets for telecom stocks after the tariff hike.
Global brokerage firm Morgan Stanley upgraded Bharti Airtel to ‘overweight’ and raised its target price to Rs 530 from Rs 410 per share earlier. The brokerage expects the company to see an improvement in profitability and balance sheet repair over the next few years along with rise in average revenue per user (ARPU).
CLSA also maintained a ‘buy’ rating on the Bharti Airtel stock and increased its target price to Rs 560 from Rs 515 earlier as it believes the company’s aggressive network rollouts and superior execution could drive upside to market-share forecast of 30% by FY22.
Interestingly, while the current tariff increases are applicable only on prepaid subscribers which account for around 75% of Bharti
Airtel’s mobile revenues, CLSA expects comparable hikes in post-paid tariffs too in coming days.
Consequently, the brokerage firm factors in around 40% tariff hikes by FY22 as compared to 35% earlier and raised ARPU estimates for FY21-22 by 6%.
However, CLSA has retained its ‘sell’ call on Vodafone Idea due to market share loss and hefty AGR (aggregate gross revenue) dues after the adverse Supreme Court ruling. The Vodafone Idea stock plunged over 11% on Tuesday after the CLSA forecast.
The brokerage firm said that Vodafone Idea will find it difficult to fund a hefty annual spectrum payment of Rs 16,000 crore despite a 40% tariff hike by FY22.