Brokerages Cheer As Airtel, Reliance Jio, Vodafone Idea Announce Tariff Hikes In Unison

Analysts hailed the tariff hikes announced by India's three private mobile operators, which signaled the easing of a three-year-long tariff war that erupted when the richest Indian muscled into the sector with free data and dirt-cheap tariff plans.

Bharti Airtel Ltd. and Vodafone Idea Ltd. said Sunday they would hike tariffs between 15 percent and 50 percent, which will be effective from Dec. 3, while Reliance Jio Infocomm Ltd. said it will increase tariffs by up to 40 percent from Dec. 6.

The entry of Mukesh Ambani-led Reliance Jio in September 2016 triggered a price war and an industry-wide consolidation, leaving behind only three private operators. The top two operators by active subscriber base—Bharti Airtel and Vodafone Idea—were further hit when the Supreme Court ruled against them in a case relating to how they calculate their non-core revenue, leading to them posting record losses in the quarter ended September.

Bharti Airtel and Vodafone Idea have now also limited the number of minutes for outgoing calls, after which they will start charging at six paise per minute. The price hikes by both the operators are similar and they offer tariff plans at the same price points.

The hike is expected to boost Bharti Airtel and Vodafone Idea's quarterly revenue by 21 percent, according to BloombergQuint's calculations. The quantum of revenue growth is expected to be minimal on the back of a higher number of 2G subscribers on their networks.

Here's what brokerages had to say on the telecom tariff hikes.

Emkay Global

• Tariff hike is a historic move; flow-through is crucial for sustained re-rating.
• See risk among lower-end consumer's spending behaviour after the steep hikes.
• Content offering and network quality are key differentiators.
• Upgrade Vodafone Idea to ‘Hold' from ‘Sell'; hike target price to Rs 8 from Rs 5.
• Upgrade Bharti Airtel to ‘Buy' from ‘Hold'; hike target price to Rs 507 from Rs 434.
• Maintain ‘Sell' on Bharti Infratel; hike target price to Rs 264 from Rs 248.

Goldman Sachs

• Tariff hike significantly higher than expected.
• Hikes suggest annual Ebitda of telecom operators could go up by $1 billion.
• See some risk to subscriber additions of Airtel and Vodafone Idea at lower end.

Credit Suisse

• Tariff hikes in line with expectations; expect further increases over 12-18 months.
• After Reliance Jio tariff hike, the premium would decline to 10-20 percent for popular prepaid plans of Airtel and Vodafone Idea.
• Factoring in cumulative 55 percent increase in average revenue per user by FY22 from September levels.
• Positive on Bharti Infratel as market gains confidence on India remaining three private operator-market.

Motilal Oswal

• Tariff hike could trigger market share loss for Vodafone Idea; Prefer Bharti Airtel.
• Market share loss could dilute gains.
• Would require more actions/sops to fill cashflow gaps, AGR liability for Vodafone Idea.
• Strong and growing free cash flow should lead to deleveraging for Bharti Airtel.

Jefferies

• Higher-than-estimated price hike is positive.
• Expect revenue to increase between 11 percent and 23 percent.
• Revenue growth lower than hikes due to downtrading, SIM consolidation, no increase in postpaid tariffs and lower hike in voice plans

JPMorgan on Reliance Industries

• If Jio matches incumbents' tariff hikes, then focus would shift to sub-retention.
• Post-tariff hike, implied premium to Jio's existing plan would rise to 50 percent.
• Multi-simming could reduce; subscriber addition growth could slow down for Jio.