The recent decision of the three telecom players to raise tariffs is unlikely to be a one-off event. Brokerages expect the trend to continue with tariffs increased up to 25 per cent over the next two years.
It is felt that the biggest beneficiary will be Reliance Industries with optimistic estimates suggesting that Jio’s monthly average revenue per user (ARPU) will rise to around Rs 200 by 2023-24 from Rs 121 in the first half of this fiscal.
Bharti Airtel and Vodafone had announced last week that they would raise rates from December 1. Reliance Jio, which had already started charging customers six paise per minute for calls to other networks, also said that it would increase tariffs over the next few weeks.
None of the three has announced the amount of the hike even as brokerages differ on how the trio will go about the exercise.
Some believe it will be a single-digit hike, while others argue it will be more than 10 per cent. But they all agree the hikes will be sustained over a period of time.
“Its (RIL’s) focus to grow its subscriber base could keep its tariffs at a discount to peers. On our estimates, a 5 per cent rise in ARPU impacts RIL’s consolidated earnings by two per cent and raises operating cash flows by $220 million,” analysts at Morgan Stanley said in a recent note.
The brokerage expects the RIL stock to gain further because of the higher tariffs, monetisation of telecom assets and an upside risk to its refining margins as global additions to its refining capacity slow down.
According to a note from JP Morgan, while initial tariff hikes is likely be in high single digits, there could be a 25 per cent increase over the next two years for Jio. The brokerage said the hikes should be sharply positive for RIL and Jio. The projected increase in revenue per user could be on account of higher tariffs as well as higher charges for its digital services.
“We believe RIL will be a certain beneficiary of all the plausible scenarios that may play out in the Indian telecom sector in the medium term. We see a 22-30 per cent upside
to the RIL stock from the current levels, expecting visibility on these scenarios to improve in the near term,” a report from Kotak Institutional Equities said.
It has projected an increase in Jio’s monthly ARPU to Rs 150 in 2020-21 and Rs 200 by 2023-24.
On Friday, Bharti Airtel and Vodafone Idea had filed a review petition in the Supreme Court with regard to its October 24 order on adjusted gross revenue (AGR). The incumbent operators have also sought reliefs from the government.
Industry association COAI had earlier urged the Centre to not press for the AGR liability payment and grant waivers, not levy Spectrum Usage Charges (SUC) on non-licensed revenue apart from reduction of license fee and SUC rates.
On Friday, the RIL scrip settled at Rs 1,546.40 with its market capitalization at the BSE standing at over Rs Rs 9.80 lakh crore. Though the RIL stock has outperformed the benchmark index (its shares have risen by over 38 per cent this calendar year) due to the strong performance of its consumer facing business and plans to bring down debt, analysts expect more steam in the stock.
