Airtel, Jio, Voda Tariff Hike: Telcos' Earnings To Increase Up To 25%, Shares Show Mixed Reactions

With an improved financial metrics, the telecom industry will have the headroom to undertake deleveraging as well as fund capex for the technology upgrade, says analysts.

As telecom players Reliance Jio, Bharti Airtel and Vodafone Idea raised their tariffs last week, the move is expected to boost their earnings by 20 per cent-25 per cent, according to India Ratings and Research.

“The improvement in Ebitda (earnings before interest, tax, depreciation, and amortisation) would be gradual over the next six months,” India Ratings said in a note.

The gradual improvement will be because the tariff hike shall become effective for certain long-duration plans on the next recharge cycle, and there could be potential customer churn and downtrading, it added.

In the past, tariff hikes had resulted in SIM consolidation, leading to a reduction in the overall customer base, India Ratings said in the note.

Priyanka Bansal, associate director of Ind-Ra, said, “The tariff hike bodes well for the telecom sector as it would not only reduce competitive intensity, but also help in improving the return on capital employed of the business post 5G investments.”

On Monday, shares of Bharti Airtel were trading higher by Rs 7.05, or 0.49 per cent, at Rs 1,452.4 apiece on the BSE, as of 1:44 pm. However, Vodafone Idea’s stock was trading marginally lower by Rs 0.17, or 0.95 per cent, at Rs 17.73 on the BSE.

Meanwhile, according to another rating agency ICRA, the telecom tariff hikes can yield additional operating profits of around Rs 20,000 crore for the industry once they are fully absorbed.

With an improved financial metrics, the industry will have the headroom to undertake deleveraging as well as fund capex for the technology upgrade, and network expansion, Ankit Jain, Vice President and Sector Head of Corporate Ratings, ICRA said.

“The latest round of tariff hikes wherein the telcos increased the prepaid tariffs by around 15-20 per cent will provide the traction in the (Average Revenue Per User) ARPU levels and can result in additional operating profits of around Rs 20,000 crore for the industry once these hikes are fully absorbed,” ICRA said.

On June 27, Reliance Jio, India’s largest telecom operator, announced a 12-27 per cent hike in mobile tariffs with effect from July 3. The following day, Bharti Airtel on June 28 announced a 10-21 per cent hike in prepaid and postpaid mobile tariffs from July 3.

Later in the day, loss-making telecom operator Vodafone Idea (Vi) also announced its plan to raise mobile tariffs by 11-24 per cent from July 4.

The tariff hikes from mobile operators come immediately after the 10th spectrum auction, which ended in just two days with muted response from the industry.

A look at the tariff and rate hikes announced by the two telcos respectively, indicates that most of the Airtel mobile plans will still cost more than that of Reliance Jio. According to a UBS report, Airtel’s new price across plans will cost 3-22 per cent more than that of Jio’s plan which will be effective from July 3 onwards.

Among the unlimited voice plans, Airtel has raised tariffs in the ballpark range of about 11 per cent, and accordingly rates are revised from Rs 179 to Rs 199; from Rs 455 to Rs 509; and from Rs 1,799 to Rs 1,999. In the longer 84-day validity plans, subscribers will have to shell out Rs 140 more (in absolute terms) depending on the offering.

Vodafone has raised the entry-level plan, minimum recharge value for 28 days of mobile service, by about 11 per cent to Rs 199 from Rs 179. Vi has raised the price of a popular 84-day validity plan with 1.5 GB data per day to Rs 859 from Rs 719 earlier.

Vi, however, has not made any changes across its several plans comprising Rs 1,799 and Rs 3,099 plan with 365 days validity as well as some of the data add-on packs.

Jio had announced a 12-27 per cent hike in mobile tariffs.