Bharti Airtel's Tariff Hike Paves The Way For Higher Telecom Pricing In India
Bharti Airtel Ltd.'s increased prepaid tariffs will boost its operating income and pave the way for higher pricing in India's struggling telecom market, according to analysts.
Billionaire Sunil Mittal-controlled carrier will raise prices of its prepaid plans by at least 20% as it aims to improve the amount it earns per subscriber a month, according to its media statement. The new prices will be effective Nov. 26, 2021.
The entry-level plan will cost Rs 99 compared with the earlier price of Rs 79.
The unlimited voice pack for 28 days will start from Rs 179 compared with Rs 149 earlier.
The 56-day pack will start from Rs 479 against Rs 399 earlier.
The 84-day plan will start from Rs 455 compared with Rs 379 earlier.
The higher-end full-year plans will start from Rs 1,799 against Rs 1,498 earlier.
The minimum data top-up plan will cost Rs 58 as opposed to Rs 48 earlier.
“Bharti Airtel has always maintained that the mobile average revenue per user needs to be at Rs 200 and ultimately at Rs 300, so as to provide a reasonable return on capital that allows for a financially healthy business model,” the statement said. “This level of ARPU will enable the substantial investments required in networks and spectrum. Even more important, this will give Airtel the elbow room to roll out 5G in India.”
The telecom operator had previously raised its entry-level prepaid pricing by 61.2% and postpaid cost by 20-50% in July. Close to 95% of the company’s mobile services customers are prepaid, it said in a quarterly release.
According to India Ratings & Research, the tariff hike is likely to meaningfully improve ARPU of Bharti Airtel as it’s one of the sharpest and most broad-based, spanning across various plans, witnessed in the recent past. “The hike paves way for other telecom companies also to take similar pricing action... [That would] further reduce industry competitiveness and aid ROCEs (return on capital employed).”
Bharti Airtel’s ARPU rose to Rs 153 in the quarter ended September from Rs 146 in the preceding months. Its total customer base rose 1.1% sequentially to 35.5 crore in July-September. Its 4G subscriber base rose 4.3% to 19.25 crore. The carrier, according to the latest data from the telecom regulator, has maintained an active subscriber market share of more than 34% since January 2021.
Shares of Bharti Airtel rose 5.83% in early trade on Monday to Rs 756 apiece—a record high. Of the 34 analysts tracking the company, 32 have a ‘buy’ rating and two suggest a ‘hold’, according to Bloomberg data. The 12-month consensus price target implies an upside of 9.8%.
The stock’s trading volume was 5.5 times the 30-day average volume for this time of the day.
Preliminary calculations suggest that the announced hike will boost Bharti Airtel’s India wireless Ebitda by Rs 8,000-8,500 crore, assuming a modest level of SIM consolidation and plan downgrades.
The announced hike is adequate to meet its FY2023 forecasts, currently based on India wireless ARPU of Rs 184 a month versus Rs 157 realised by Bharti Airtel in Q2 FY22.
Hence, it expects an upside to earnings estimates while estimating a further hike in tariffs during the next fiscal.
If we assume mobile ARPUs to increase further to an average of Rs 200 a month in FY2023, our consolidated Ebitda estimates will increase by 8% to about Rs 75,000 crore.
Maintains ‘buy’ on Bharti Airtel with a price target of Rs 820, implying an upside of 14.9%.
The sharp 20-25% tariff hike announced by Bharti Airtel across most prepaid categories is ahead of our expectations of a 15% hike and helps materialise a long-awaited catalyst.
Given the extent of the hike, there could be 5-6% upsides to our ARPU and Ebitda forecasts for FY23/24E, though we await the response of Reliance Jio Infocomm Ltd. before fine-tuning our estimates.
Vi (Vodafone Idea Ltd.) is almost certain to follow Bharti Airtel’s tariff hikes, which would be a clear positive given its leverage situation. It could also help with its much delayed capital raise, which is critical for it to accelerate network investments and stem subscriber losses.
Reiterates ‘overweight’ on Bharti Airtel with a price target of Rs 830 apiece, implying an upside of 16.3%.
Price hike to drive an 18% increase in ARPU and revenue, and 24% Ebitda increase for Bharti Airtel’s India wireless in FY23/24.
The tariff hike was long overdue and is the first step towards ARPU repair for Bharti Airtel as well as the industry.
There is a risk of SIM consolidation and downtrading as some price-sensitive customers could switch providers. Although, the risk is not significant.
Expects Vi and Reliance Jio to follow suit with tariff hikes on prepaid plans.