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BofA analyst predicts 15-20% telecom tariff hike post Lok Sabha elections

Sachin Salgaonkar, Senior Research Analyst, BofA Securities expects to see a 15-20% tariff hike by telecom companies post Lok Sabha Election results because, for the last two to two and a half years, the sector did not see any tariff hike.

“We are at a point where the market is generally okay from a consumption point of view to do take that tariff hike,” he said in an interview with CNBC-TV18.

Q: Your take on some of these things like the potential for tariff hikes, and these are a lot of the things which markets were betting on as dividends of political continuity, which seems to be not in doubt, but it’s weaker than what many thought.
A: As a starting point, India telcos are a consumption story, so at some level, it’s slightly disconnected from what we are seeing in politics. But you are right from a point of view that for the longest time, the sector was waiting for a tariff hike and the general thought was that post-elections we are going to see a tariff hike. I do think that event will still play out, a simple reason for that is all three telcos are okay with a tariff hike and this is a decision which has largely been taken by the telcos.

Of course, the timing and magnitude are something which no one knows. The general expectation was this would happen immediately post-election. Let’s see where these things go. Our general expectation is it’s still around a 15-20% hike. The reason being is for the last two, two and a half years, we didn’t see a tariff hike. And we are at a point where the market is generally okay from a consumption point of view to do take that tariff hike.

Q: Sachin, right now we’re seeing this absolute mayhem play out on a lot of CAPEX stocks. What are your thoughts on this now?
A: At least from the telcos, most of the 5G CapEx is largely behind. You do have a bit of a catch-up CapEx. So from that perspective, we, in fact, see free cash flow improving for all these entities. Of course, the magnitude of the tariff hike is lower. Then the free cash flow improvement may not be as high.

From a valuation perspective, these stocks are not as expensive, so there is still some room to catch up out here. CNBCTV18

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