Telecom tariff increase announced by Bharti Airtel and Reliance Jio (R-Jio): Commencing on July 1, the two companies will increase the rates for all of their plans. On Thursday, June 27, during post-market hours, R-Jio announced a plan hike of 12 to 25 percent. On Friday, June 28, Sunil Mittal’s Bharti Airtel followed suit with a plan hike for its main telecom offerings.
But starting on July 3, 2024, Bharti Airtel will also be changing its mobile rates. On Friday, June 28, Bharti Airtel’s shares increased 5% to reach a record high of Rs 1,539.10 on the BSE.
R-Jio was the final company to raise pricing in the last two rounds, with Vodafone Idea (Vi) in December 2019 and Bharti (Dec 2021) taking the lead. R-Jio has not been forthright about the need for industry-wide rate hikes, according to analysts at Kotak Institutional Equities, in contrast to Bharti Airtel and Vi, who have been more vocal about the need for industry tariff correction.
R-Jio’s tariff increase was as, if not more, urgently needed in light of its increased 5G investments and continued reduction of RoCEs and FCF. R-Jio taking the lead in raising tariffs is a sentimental positive for the telecom industry, even though the scope and timing of the hikes are in line with our predictions, they stated in a recent note.
Morgan Stanley analysts think that Bharti Airtel’s announcement of a pricing hike could provide an instant lift to the stock, similar to what happened in 2019 and 2021. However, their/consensus EBITDA predictions won’t necessarily be materially upgraded as a result of this tariff hike.
Following the announcement of a pricing hike for the following one, three and six months, Bharti Airtel stock continues to outperform the Sensex in 2019. It underperformed in the first, third, and sixth months following the 2021 tariff hike, even though the hike was widely expected and the stock had fared well in the three months prior.
“This time, Bharti Airtel stock is up 13 percentage points relative to the Sensex in the last three months – a blended tariff hike was largely anticipated,” Morgan Stanley analysts stated.
After the 2019 tariff hike was announced, the one-year forward EV/EBITDA multiple for Bharti Airtel’s Indian business was at 9.8x. Morgan Stanley estimates that during the next six months, this multiple was re-rated roughly 15%, to 11.3x.
“The multiple was 10.7x at the time of the 2021 boost, but it failed to increase during the next six months due to underperformance, instead depreciating. According to our projections, the Indian business’s one-year ahead EV/EBITDA is currently about 13.2x, which is not too far from its all-time high of 13.7x, according to the Morgan Stanley paper.
With Reliance Jio’s recent announcement of a rate hike, Morgan Stanley analysts for Bharti Airtel envision a new floor of Rs 1,000–1,050 (assuming the 15-year average multiple on base case earnings).
The following represents the interpretation provided by top brokerages regarding the hike in RJio and Bharti Airtel telecom tariffs.
Jefferies regarding RIL
Purchase call; Rs 3,580 is the new target price.
Jio increased prices by 13% to 25%;
Reduce Jio’s projections for FY25–27 by up to 3%.
Over FY24–27, Jio is expected to generate 18–26% of revenue and a PAT CAGR of
Adjust RIL’s FY25/26 Ebitda by 1% to 1% in order to account for Jio’s results.
Morgan Stanley regarding RIL
Overweight Call with a price target of Rs 3,046
Tariff rises in line with what we anticipated in our base case
The process of monetizing investments is ongoing.
By the end of 2024, the creation of new energy cash flow sources will be the next motivator to watch.
Till FY27, do not anticipate any more tariff increases.
However, another 20% increase in tariffs the next year could result in a 10%–15% increase in earnings.
CITI in the Telecom
The size of Reliance Jio’s rise is astounding;
Jio assuming the lead implies that the pinnacle of the level of competition is over and represents a change in perspective from the market leader;
Jio has made a move to monetize 5G in an indirect way.
Jefferies regarding Telecom
It is encouraging for Bharti/Jio’s revenue and profit forecast that Jio is willing to boost pricing;
Continue to purchase Bharti; aim price is Rs 1720