Telecom Tariff Hikes: A Sustainable Path for Telecom Companies
Telecom giants in India, particularly Bharti Airtel and Vodafone Idea, are poised for significant tariff increases, with projections suggesting a potential hike of up to 15% in FY27. Analysts attribute this opportunity to the relatively low price of services in India compared to other Asian nations, coupled with a favorable regulatory environment that supports such increases.
The Impact of Legal Rulings on Tariff Strategies
The recent unfavourable Supreme Court ruling regarding the Adjusted Gross Revenue (AGR) obligations has placed a financial strain on Vodafone Idea. Analysts from JPMorgan suggest that to meet its spectrum dues, which include outstanding AGR payments, Vodafone needs to implement annual tariff hikes. This highlights the critical interdependence between legal frameworks and financial strategies in the telecommunications sector.
Market Position and Revenue Insights
According to JPMorgan, India’s data yield remains the lowest in the region at merely $0.09 per GB, a stark contrast to the GDP per capita-adjusted rates in other countries. Additionally, the Average Revenue Per User (ARPU) reflects a modest 0.7% of GDP, which has not significantly shifted nearly a decade post the introduction of Jio. This scenario suggests substantial room for tariff escalations that can drive revenue growth.
Expectations for Tariff Adjustments
Given the current market conditions, JPMorgan anticipates successive tariff hikes, estimating an increase of 15% in FY27 for major telecom providers including Bharti Airtel, Bharti Hexacom, and Vodafone Idea. This optimism for tariff adjustments stems from the need for revenue restoration amidst looming financial challenges.
Individual Telecom Evaluations
Bharti Airtel: A Strong Contender
Bharti Airtel has been identified as a top pick within the telecom sector due to its efficient operations and potential for further tariff increases. With expected hikes, revenues and EBITDA could rise by 5-6%, while margins are projected to improve by 50 bps for FY27. Consequently, JPMorgan has increased the share price target for Airtel to ₹1,920 per share, up from ₹1,670.
Bharti Hexacom: Sustained Growth Forecasts
For Bharti Hexacom, JPMorgan has also raised revenue and EBITDA estimates by 4-5% for FY27, factoring in the anticipated 15% tariff hikes. The financial outlook is bolstered by an updated share price target now set at ₹1,580, a significant increase from the previous target of ₹1,330.
Indus Towers: A Preferred Investment
Indus Towers is viewed as a premier choice among tower companies, with projections indicating steady monthly payments from Vodafone Idea and an ongoing expansion of tower installations in FY25. JPMorgan has adjusted its target price for Indus Towers to ₹525, reflecting confidence in its financial stability and growth potential.
Vodafone Idea: A Balancing Act
In a recent reassessment, JPMorgan upgraded Vodafone Idea’s rating to Neutral from Underweight, raising its share price target from ₹7 to ₹10. Despite the upward revision, the company faces ongoing challenges, including subscriber losses that necessitate a robust strategy for recovery and subscriber retention.
Outlook for the Telecom Sector
Looking ahead to the Q2 results, Bharti Airtel is projected to achieve 6.7% quarter-on-quarter growth in wireless revenue driven primarily by a 9% increase in ARPU, despite a subscriber churn of 1.2 million. Meanwhile, Vodafone Idea is anticipated to see a 5.7% revenue boost, supported by an 8% rise in ARPU, even as it grapples with an estimated loss of 4 million subscribers during the same period.
Disclaimer: The observations and recommendations outlined above represent the perspectives of individual analysts or brokerage firms, and do not reflect the views of this publication. Investors are encouraged to consult with certified financial advisors before making investment decisions.
