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Telecom Tariff Hike Significantly Higher Than Expectations: Analysts

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 percent.

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

The magnitude of the pre-paid unlimited plans, which was higher by about 22 percent on average versus existing 28-day plans and 33 percent on average for 84-day plans, was a surprise, Goldman Sachs said in a report.

Bharti Airtel and Vodafone India Ltd (VIL) announcing 30 percent (average) higher prices for lower-end plans offering 100 and 200 MB data came in as a surprise. “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 telcom companies could go up by $1 billion, the brokerage firm added.

“As all telcos are looking to raise tariffs at almost same magnitude, we do not see any negative elasticity impact. In the past we saw negative elasticity as consumers had 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, consider Bharti Airtel and Reliance Jio Infocomm (Reliance Industries Ltd) to benefit from tariff hikes.

Reliance Jio to be still cheaper

On Sunday, RJio also said it will take hike rates but did not divulge the quantum of increase.

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

Even after these hikes, we believe Jio will continue to be 15-20 percent cheaper than the incumbent operators,” it added.

“An Average Revenue Per User (ARPU) increase of Rs 25-30 from these price hikes (assuming some down-trading) and incremental EBITDA for the two companies work out to Rs 8,000-9,500 crore and Rs 7,000-8,500 crore, respectively, Kotak Institutional Equities Research said in a note

Telecom shares soared on Monday morning following the tariff hikes.

At 11.10 am, Bharti Airtel shares – which opened at Rs 470 – were trading up by 8.12 percent at Rs 473.85, while that of Vodafone Idea (opened at Rs 7.51) were up 20.50 percent at Rs 8.23 on the Bombay Stock Exchange (BSE).

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 Rs. 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 Rs. 507 and Rs. 8, respectively.―The Hindu Business Line

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