Tariff hike impact: Airtel soars 5%, hits new high; RIL mcap tops Rs 21 trn

Telecom stock update: Bharti Airtel rallied 5 per cent to hit a new high at Rs 1,539; RIL rose 2% to Rs 3,129, and saw its market capitalisation touch Rs 21.12 trillion in intra-day trades today.

Shares of telecom companies were on a roll and rallied up to 5 per cent on the BSE in Friday’s intra-day trade after a tariff increase by the sector major Reliance Industries (RIL) and Bharti Airtel with-effect-from July 3rd, 2024.

However at 09:30 am; these stocks were trading higher by 1 per cent, erasing part of their intra-day gains on profit-taking. In comparison, the BSE Sensex was up 0.31 per cent at 79,492.

RIL hit a new high of Rs 3,129, up 2 per cent in intra-day trade after Reliance Jio on Thursday announced 12-25 per cent rise in tariff across the board for mobile plans, in both prepaid and postpaid segments.

The highest increase of 25% is in one plan of 1.5 GB/day. The unlimited data for 5G, however, would continue for all 2 GB/day and above plans. JioBharat/JioPhone users will continue to have the existing tariffs.

The move, which follows a tepid round of spectrum auction, is expected to shore up the telco’s monthly average revenue per user (ARPU), which had stagnated at Rs 181.7 for three quarters until March 2024. Over the years, India’s telecom Arpu has been among the lowest in the world.

Thus far in the month of June, RIL has outperformed the market by surging 9 per cent. In the past eight months, the stock has rallied 38 per cent. A sharp rise in stock price has seen the RIL’s market capitalistion (m-cap) hit the Rs 21 trillion mark for the first-time ever. RIL’s m-cap touched Rs 21.12 trillion in intra-day trade today.

“We highlight that the tariff hike would result in stepped up ARPU of ~17 per cent, as per our assumptions, assuming a 100 per cent pass through, three fourth of which will be seen in FY25. The hike is tad higher than our expectations of ~15 per cent step up hike, which will drive ~ 4 per cent upgrade in our EBITDA estimates,” ICICI Securities said in a note.

Meanwhile, Bharti Airtel rallied 5 per cent to hit a new high of Rs 1,539.10 on the BSE. Post which, the stock was trading 1 per cent higher at Rs 1,487, after hitting a low of Rs 1,466.65 in intra-day trade.

Airtel said the company will also revise its mobile tariffs, from July 3rd, 2024. There is a very modest price increase (less than 70p per day) on the entry level plans in order to eliminate any burden on budget challenged consumers, the company said.

Airtel said the company has maintained that the mobile ARPU needs to be upwards of Rs 300, to enable a financially healthy business model for Telcos in India. The company said it believes that this level of ARPU will enable the substantial investments required in network technology and spectrum and offer a modest return on capital.

Overall, a tariff hike after two years is a positive step for the telecom industry, as this will provide a breather for VIL and improve return ratios for Bharti/RJio, Motilal Oswal Financial Services said.

Meanwhile, shares of Vodafone Idea were trading 1.4 per cent lower at Rs 18.26 on the BSE.  The stock had rallied 3 per cent to Rs 19.15 in intra-day trade.

Meanwhile, analyst at Centrum Broking remain positive on the telecom sector as 2G to 4G migration, increased data monetization and expected tariff hikes would support ARPU (average revenue per user) growth for telecom service providers in near term. The brokerage firm expect around 15 per cent tariff hike in Q2FY25. Also 5G related capex should moderate in FY25 for Jio and Airtel.

Bharti Airtel remains on strong footing with industry leading ARPU, growing subscriber base and excellent track record in business execution and is expected to deliver robust performance going ahead. VIL continues to lose subscribers but the recent fund raise should help it to increase its capex to augment its network infrastructure. Reliance Jio is expected to maintain the steady growth trend in subscribers and ARPU, through the increase in subscribers might moderate going ahead, the brokerage firm said in sector report.