Tariff hike by telcos to improve sector's revenue, cash flow
An upward revision in prepaid tariffs by domestic telecom majors is expected to provide much-needed breather to the overall sector in the run up to the rollout of 5G services in the country.
Last week, Vodafone Idea, Bharti Airtel and Reliance Jio had raised their prepaid tariffs by around 20 per cent each. Vodafone Idea and Airtel's revised tariffs came into effect last Thursday and Friday, respectively.
Indian telecom companies are now strongly focusing on improving average revenue per-user (ARPUs), while retaining their active subscriber base.
"The tariff hike, led by Bharti Airtel, is expected to improve ARPU and free cash flow of the telcos. Incremental cash flows would aid the much-needed network expansion and 5G rollout," said Mohit Nigam, Head-PMS, Hem Securities.
Bharti Airtel and Reliance Jio are expected to gain over Rs 7,500 crore each as cash flow due to their relatively high market share, Nigam said.
"However, Vodafone Idea is expected to show relatively better margin expansion than its peers due to the tariff hike, but retention of subscribers will be the key factor to watch as the price hike could further dent the market share of the defunct telco," Nigam said.
According to Ankit Pareek, Research Analyst at Choice Broking: "Considering the positive triggers like the recently announced 'telecom relief package and tariff hike', Reliance Industries and Bharti Airtel are our top picks in the telecom space, which are expected to be key beneficiaries in the mid-to-long term."
The tariff revision is a positive move to strengthen business and improve cash flows of telecom players, Pareek added.
Earlier this year, the Centre had allowed 100 per cent foreign direct investment (FDI) into the telecom sector through the automatic route, approved a four-year moratorium on dues of telecom service providers, and also changed the definition of adjusted gross revenue (AGR), among some other moves in a bid to support the cash-strapped sector.
"The long-awaited tariff hikes are expected to ring in recovery in the sector and would complement the relief package offered by the government of India in September 2021. All the three telcos have announced around 20 per cent hikes in their existing tariffs, the first major increase after December 2019," said Ankit Jain, Assistant Vice President and Sector Head - Corporate Ratings, at ICRA.
"These would result in an improvement in the operating metrics of the industry, with expected industry ARPU to improve to around Rs 150-160 in the medium term, which would translate into a revenue growth of 12-14 per cent in FY23 (for the three telcos combined) and given the high operating leverage, the industry operating profit is expected to grow by 15-18 per cent to around Rs 125,000 crore in FY23," Jain added. -IANS
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