Analysts positive on telecom service providers despite delay in tariff hike




A delay in by telecom services providers Bharti Airtel, (Vi), and (subsidiary of Reliance Industries) – as expected earlier – has not yet turned analysts cautious on the sector. On the contrary, the underperformance of and Vi at the bourses, relative to the benchmark S&P BSE Sensex and S&P BSE Telecom indices on a year-to-date (YTD) basis, can be used as an opportunity to enter these stocks from a long-term perspective, they say.


Thus far in calendar year 2021 (CY21), the stock of has risen 2.8 per cent on the BSE while that of Vi has declined 8 per cent. Peer firm Reliance Industries’ stock that now is seen by analysts as a play both on telecom and oil, on the other hand, has risen 3.2 per cent, ACE Equity data show. In comparison, Sensex and BSE Telecom indices are up 2.9 per cent and 4 per cent, respectively during the period.



Naming telecom as a Covid-19 resistant sector, Ambareesh Baliga, an independent market analyst, believes the sector still remains resilient. “While potential increase in average revenue per user (ARPU) remains a key trigger for Vi, correction from recent highs makes attractive. Therefore, Vi investors can stay put in the stock for now, new investors can put in money in Bharti Airtel,” he says.


delayed


Analysts believe the current financial stress in the sector makes a case for pushing back the Impasse on tariff floor pricing, reluctance of Vi to make the first move, fear of subscriber base erosion, and indirect impact on inflation are some of the reasons, analysts say, why telcos have refrained from hiking tariffs so far.


“Contrary to the other two players, Vi can hike the tariff and justify it based on its financial stress. But, it will also have to justify the timing of the hike given that prices were hiked last in December 2019. A steep hike within one and a half year may not be liked by the telecom regulator (Trai) as it is an anti-consumer move,” says an analyst at a domestic brokerage. Vi, according to him, has refrained from the move so far as the telco’s revenue took a hit the last time it hiked prices.


Notably, latest subscriber data released by the Telecom Regulatory Authority of India (Trai) showed that Vi’s gross subscribers turned positive for the first time, after 14 months, in January 2021 with 1.7 million additions (to 286 million subscribers), while the decline in its active subscribers slowed to 0.3 million to 256 million (compared with a loss of 1.5 million in Dec’20), signaling a bottoming of the subscriber churn.


Peer firms Bharti Airtel and RJio, however, added 5.9 million/6.9 million and 2 million/-3.5 million gross/active subscribers, respectively.


Apart from the aforementioned reasons, global brokerage Jefferies thinks that hefty spend during the 5G spectrum auction has also pushed back tariff hike.


Reliance Jio’s Rs 57,100 crore expense on spectrum while Bharti Airtel’s approach of acquiring more spectrum in its weaker do not bode well for the tariff environment, it said in a report dated March 8.


JM Financials, meanwhile, opines that Jio would be more amenable to tariff hikes, once its subscriber base reaches 500 million subscribers (vs 411 million at end Q3FY21). “Hence, a successful traction in both the new Jiophone offer and the impending smartphone launch – enabling Jio to increase subscriber addition – would be the key catalyst for an industry-wide tariff hike, which looks likely by end FY22,” it says.


Those at India Ratings believe increasing data usage and rising proportion of higher ARPU data customers in the overall subscriber mix hint that even without tariff hikes, the sector is structurally moving towards a higher-ARPU regime. Ind-Ra has maintained a ‘stable outlook’ for the sector for now.

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