By Animesh De New Delhi, Nov 29, : A revision in prepaid tariffs made by major domestic telecom companies is expected to give much-needed relief to the sector as it prepares for the rollout 5G services in India.
Reliance Jio, Bharti Airtel, and Vodafone Idea all increased their prepaid tariffs by approximately 20% each last week.
Last Thursday and Friday, Vodafone Idea and Airtel changed their tariffs.
Indian telecom companies are now focusing on increasing average revenue per user (ARPUs) while maintaining their active subscriber base.
“The Bharti Airtel-led tariff hike is expected to increase ARPU and free cash flow for telcos.Mohit Nigam Head-PMS, Hem Securities, stated that incremental cash flows would help the network expansion and 5G rollout.
Nigam stated that Bharti Airtel, Reliance Jio and Reliance Jio will each be able to generate cash flow of more than Rs 7,500 crore due to their high market share.
Nigam stated that Vodafone Idea will likely show a higher margin expansion than its peers because of the tariff hike.
However, retention of subscribers will be the key determinant as the price rise could further reduce the market share of the defunct telecom company.
Ankit Pareek (Research Analyst at Choice Broking): “Considering the positive triggers such as the recently announced telecom relief package, tariff hike, and Reliance Industries, Reliance Industries, and Bharti Airtel are top picks in telecom space, which are expected be key beneficiaries in mid-to-long-term.”
Pareek said that the tariff revision was a positive step to improve business and cash flow for telecom players.
The Centre allowed 100% foreign direct investment (FDI), into the telecom sector via the automatic route earlier this year.
It also approved a four year moratorium on dues for telecom service providers.It also changed the definition and adjusted gross revenue (AGR) in an effort to support the cash-strapped sector.
“The long-awaited tariff increases are expected to bring about recovery in the sector and complement the relief package offered in September 2021 by the government.Ankit Jain, Assistant Vice-President and Sector Head – Corporate Ratings – ICRA, stated that all three telcos announced about 20% increases in their tariffs.
This is the first major increase since December 2019.
Jain stated that these would lead to an improvement in industry operating metrics.
The industry ARPU is expected to rise to around Rs 150-160 over the medium term.This would translate into a revenue increase of 12-14 percent in FY23 (for all three telcos).
Given the high operating leverage, the industry’s operating profit is expected grow by 15-18% to Rs 125,000 crore in FY23.
(Animesh Deb may be reached at animesh.d@ians.in
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