Due to the low cost of services compared to other Asian nations and the favourable regulatory climate, telecom companies such as Bharti Airtel and Vodafone Idea have the leeway to impose an additional 15% tariff hike in FY27, according to analysts.
Analysts at JPMorgan have determined that annual pricing hikes are necessary for Vodafone Idea, which is facing financial difficulties, to cover the outstanding balance of spectrum dues, including Adjusted Gross Revenue (AGR) dues, following the Supreme Court’s adverse decision last month.
The foreign broking company draws attention to the fact that, at $0.09 per GB, India’s data yield continues to be the lowest in the region, much below the trend adjusted for GDP per capita. Furthermore, nearly ten years after Jio’s introduction, mobile fees, or Average Revenue Per User (ARPU), as a percentage of GDP, continue to be among the lowest at 0.7%.
“This provides headroom for successive rounds of tariff repair. We bake in tariff hikes of 15% in FY27E given sustained conditions for tariff repair,” JPMorgan said.
The brokerage anticipates 15% pricing increases in FY27E for the three telecom companies—Bharti Airtel, Bharti Hexacom, and Vodafone Idea. In the second quarter that ends in September 2024, it predicts that incumbents Bharti Airtel and Vodafone Idea will lose subscribers; nevertheless, ARPU is anticipated to benefit from the recent rate increases.
JPMorgan boosted its target price for the four telecom companies and improved Vodafone Idea’s rating. Indus Towers, Bharti Airtel, Bharti Hexacom, and Vodafone Idea are now in the top four spots.
Bharti Airtel
JPMorgan’s #1 choice in the telecom business is Bharti Airtel. It accounts for an additional 15% rate increase in FY27E, increasing India’s wireless revenues and EBITDA by 5-6% and margins by 50 basis points. It pushed ahead to December 2025, boosted the target EV/EBITDA multiples to 12.5x from 11.5x, and lifted the price objective for Bharti Airtel shares to ₹1,920 per from ₹1,670 before.
It continues to be overweight in Bharti Airtel shares because it anticipates the company will begin paying significant dividends in FY25 as deleveraging and FCF improve.
Bharti Hexacom
JPMorgan projected 4-5% growth in revenue and EBITDA for FY27E, factoring in an additional 15% tariff hike. It has raised its target price for Bharti Hexacom shares from ₹1,330 to ₹1,580, with a rating of ‘Overweight’.
Indus Towers
JPMorgan’s overall top choice in the telecommunications and tower industry is Indus Towers. It thinks Vodafone Idea’s monthly payments and ongoing tower installations should stay on schedule for FY25. The broking firm maintained an Overweight rating despite increasing its target EV/EBITDA multiple to 9x from 8.5x and raising the price objective for Indus Tower shares to ₹525 from ₹500.
Vodafone Idea
JPMorgan improved the counter’s rating from Underweight to Neutral and increased its target price for Vodafone Idea shares from ₹7 to ₹10.
“We bake in another tariff hike of 15% in FY27, increase our target EV/Ebitda multiple to 12x (from 11.5x) and roll forward to December 2025. Vodafone Idea is still in the early days of proving the success of its strategy which will begin with the capex rollout, followed by arresting subscriber losses before regaining share. We will wait for proof of success in arresting subscriber losses and balance sheet exposures before turning more constructive,” JPMorgan said.
Telecom Sector Q2 Results Preview
A 9% rise in ARPU is likely to drive Bharti Airtel’s 6.7% quarter-over-quarter (QoQ) growth in wireless revenue in India, which will be offset by 1.2 million more lost subscribers. The broking firm projects that Bharti Hexacom would record a 6.1% QoQ revenue gain driven by a 7% increase in ARPU, despite the possibility of a 0.2 million drop in subscribers.
Although there should be a 4 million decrease in subscribers, Vodafone Idea is predicted to achieve a 5.7% QoQ revenue gain driven by an 8% ARPU growth. Tower additions are expected to be the primary driver of Indus Towers’ predicted 4% QoQ revenue growth.
