Bharti Airtel surges 6%, hits new high on tariff hike; Vodafone Idea up 6%

The telecom services provider increased its tariffs for telecom subscribers for a range of services effective November 26, saying the decision was for a "financially healthy business model"

Shares of Bharti Airtel hit a new high of Rs 756, up 6 per cent on the BSE in Monday's intra-day trade, after the telecom services provider increased its tariffs for telecom subscribers for a range of services effective November 26. The decision, the company said, was for a "financially healthy business model". The company hiked prepaid tariff by 20-25 per cent and data top-up plans by 20-21 per cent.

The stock surpassed its previous high of Rs 746 hit on November 15, 2021. In comparison, the S&P BSE Sensex was down 0.57 per cent at 59,298 points at 09.33 am. In the past one month, Bharti Airtel has outperformed the market by gaining 11 per cent, as against a 3.9-per cent decline in the benchmark index.

"Bharti Airtel has always maintained that the mobile Average Revenue Per User (ARPU) 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 company said in a statement.

"We also believe that 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,” Airtel said. Therefore, as a first step, we are taking the lead in rebalancing our tariffs during the month of November. Accordingly our new tariffs as indicated below will come into effect from November 26, 2021," the company added.

According to HDFC Securities, strong market position in the domestic mobile and non-mobile segment, diversification across businesses, healthy operations in Africa, high financial flexibility makes Bharti Airtel attractive for Investment. "Rising tariffs and limited competition augur well for the company resulting in lower leverage and strong improvement in return ratios," it had said in a recent report.

While telecom companies globally have not given sufficient returns to investors, as far as Indian and Bharti are concerned, market reset, integrated telco nature and ability to drive revenue growth exceeding nominal GDP could help Bharti provide returns to investors over the next few years. Also growth acceleration in the B2B space by rising demand for like cybersecurity, home entertainment, new products like Airtel IQ and Airtel Ads and Africa, can provide superior returns as risks remain contained, the brokerage firm added.

"The tariff hike is likely to meaningfully improve ARPU of BAL as the hikes are one of the sharpest and most broad-based (spanning across various tariff plans) witnessed in the recent past. The tariff hike paves way for other telecom companies also to take similar pricing action; which would further reduce industry competitiveness and aid ROCEs," said a note by India Ratings.

Following the news, shares of Vodafone Idea, too, rallied 6 per cent to Rs 10.55 on the BSE in the intra-day trade on the back of heavy volumes.