Analysts positive on telecom service providers despite delay in tariff hike

 India Ratings believes increasing data usage and rising proportion of higher ARPU data customers in the overall subscriber mix hint that even without tariff hikes, the sector is structurally strong

A delay in tariff hike by telecom services providers Bharti Airtel, Vodafone Idea (Vi), and Reliance Jio (a subsidiary of Reliance Industries) – as expected earlier – has not yet turned analysts cautious on the sector. On the contrary, the underperformance of Bharti Airtel and Vi at the bourses, relative to the benchmark S&P BSE Sensex and S&P BSE Telecom indices on a year-to-date (YTD) basis, can be used as an opportunity to enter these stocks from a long-term perspective, they say.

Thus far in the calendar year 2021 (CY21), the stock of Bharti Airtel has risen 2.8 percent on the BSE while Vi has declined 8 percent. Peer firm Reliance Industries’ stock that now is seen by analysts as a play both on telecom and oil, on the other hand, has risen 3.2 percent, ACE Equity data show. In comparison, Sensex and BSE Telecom indices are up 2.9 percent and 4 percent, respectively during the period.

Naming telecom as a Covid-19 resistant sector, Ambareesh Baliga, an independent market analyst, believes the sector still remains resilient. “While a potential increase in average revenue per user (ARPU) remains a key trigger for Vi, correction from recent highs makes Bharti Airtel attractive. Therefore, Vi investors can stay put in the stock, for now, new investors can put in money in Bharti Airtel,” he says.

Tariff hike delayed

Analysts believe the current financial stress in the sector makes a case for pushing back the tariff hike. Impasse on tariff floor pricing, the reluctance of Vi to make the first move, fear of subscriber base erosion, and indirect impact on inflation are some of the reasons, analysts say, why telcos have refrained from hiking tariffs so far.

“Contrary to the other two players, Vi can hike the tariff and justify it based on its financial stress. But, it will also have to justify the timing of the hike given that prices were hiked last in December 2019. A steep hike within one and a half year may not be liked by the telecom regulator (Trai) as it is an anti-consumer move,” says an analyst at a domestic brokerage. Vi, according to him, has refrained from the move so far as the telco’s revenue took a hit the last time it hiked prices.

Notably, the latest subscriber data released by the Telecom Regulatory Authority of India (Trai) showed that Vi’s gross subscribers turned positive for the first time, after 14 months, in January 2021 with 1.7 million additions (to 286 million subscribers), while the decline in its active subscribers slowed to 0.3 million to 256 million (compared with a loss of 1.5 million in Dec’20), signaling a bottoming of the subscriber churn.