Telecom shares, led by Bharti Airtel Ltd, were lapped up in Monday’s trade as investors cheered Sunday’s announcement by the country’s three private sector operators that they would hike pre-paid tariffs of their call and data packs. Airtel hit a 52-week high of ₹485.75, gaining nearly 10% intra-day on BSE. It ended the day at ₹458.55, higher by 3.7% from Friday’s close. The maximum tariff hike in Airtel’s case is pegged at 47%.
Vodafone Idea Ltd (VIL) closed 14% up at ₹7.79 from its BSE close on Friday. Reliance Industries Ltd (RIL) ended the session 2.3% higher, riding on a 40% tariff hike announced by its subsidiary Reliance Jio Infocomm Ltd.
The Sensex ended the day up merely 0.02% at 40,802.17.
Airtel and Vodafone’s tariff hikes are effective Tuesday, while those of Reliance Jio come into force on Friday.
Analysts termed the increase by the operators as “better than expected" and painted a positive outlook on telecom shares.
Hikes in most of the plans across the three operators are in the range of 25% to 30%, though in some cases, the increases are in excess of 40%. The operators have also tweaked their data offerings to make sure the price hikes don’t force customers to shift to a lower tariff pack (downtrading). The companies have also introduced the ‘fair usage’ concept in their plans. Freebies such as subscription of popular apps have also been added to more packs.
Bank of America Merrill Lynch, in a report on Monday, said it does not see any negative elasticity impact as all the operators will hike tariffs by the same magnitude.
“We expect more tariff hikes to follow and remain bullish. We consider Bharti and RIL as better telco names that benefit from tariff hikes and remain bullish. While VIL may show maximum upside, the overhang from the AGR issue does not make its risk-reward favourable," the research and investment banking powerhouse said in the report.
Goldman Sachs is bullish on telecom stocks but doesn’t foresee another hike by Airtel or Vodafone anytime soon. “We believe there could be some risk to subscriber additions for Bharti and VIL at the lower end (feature phones), given competition from JioPhone. On bundled plans for smartphones, Bharti and VIL are now at a 26-43% premium vs Jio’s plans, and if Jio were to fully close this gap, there could be a potential re-rating in telco stocks," Goldman Sachs said in a report.
Jefferies expects elasticity to reflect through SIM consolidation and downtrading. SIM consolidation could also lead to increased channel incentives by the operators, it said. Jefferies has a “hold" on Airtel and “underperform" on VIL shares.
Industry body Cellular Operators Association of India (COAI) doesn’t foresee any impact on affordability as it believes consumers are already paying well in excess of the new tariffs with substantially less consumption of voice and data. “At a time when the nation is looking to improve its growth rate, we can see no better move to do, than to sustain and improve the financial health of the TSPs," a COAI release quoted its director general Rajan S. Mathews as saying.
Vodafone and Bharti, already reeling under heavy debt and a hit on profitability post the 2016 entry of Reliance Jio, were left with little choice after an adverse 24 October Supreme Court ruling that penalized the companies for what the department of telecommunications (DoT) has maintained was underreporting of revenues by them. The top court imposed a penalty of ₹92,000 on the operators, many of whom have already folded. The operators were given three months to pay the dues.
The DoT has since asked the operators to work out the final numbers on their own and pay the dues. Bharti and Vodafone, along with two others, have filed a plea with the apex court bench to review its order. The tariff hike by the three operators is arguably the first of its kind in more than a decade after years of cutthroat competition ensured rock bottom prices of calls and data services. At 1.17 billion mobile users at the end of September, India is the world’s second-largest market by the number of subscribers with tariffs that are still the lowest in the world.