“A price hike, which seemed uncertain in the past 6 to 9 months due to the challenging economic scenario, has started to look imminent with weakening subscriber growth among players. Our recent interactions with industry experts indicate a possible hike. of prices of 15-20% in the next two months, “Motilal Oswal Financial Services said in a report.
CLSA said that the delays in the minimum rate could force Vodafone Idea to increase the prepaid rate in 3-6 months, as the telecommunications company faces a financial crisis in the absence of financing, a weak liquidity position and a reduction in the subscriber growth.
Vodafone Idea has raised tariffs by 7-9% on two plans and, for now, in one of 22 circles in India. Vodafone Idea’s postpaid rates are now 7% higher than Bharti Airtel and approximately 60% higher than Reliance Jio on comparable data plans.
Bharti Airtel is not following Vodafone Idea’s recent postpaid rate hikes as they are limited and on select plans. Additionally, Bharti Airtel has been gaining subscribers and increasing its revenue market share, CLSA said.
“With an increasingly intense battle for market share, in our opinion, industry minimum rates will be preferred. And even if Bharti Airtel does not lead rate increases, it had the best flow of increases of December 19 and its ARpu is at a 12-24% premium to its peers, “added CLSA.
CLSA said that Vodafone Idea’s select postpaid increases and mixed signals in prepaid rates are not leading Bharti Airtel to follow through, especially as it is also gaining subscribers (10 million in 1HFY21 vs just 1 million in FY20) , despite the premium rates for Reliance Jio, CLSA said.
Airtel had the best flow through the December 2019 raises as its Arpu is now 12-24% premium to its peers and the stock is at 6x EV / Ebitda, which is roughly 25% off. relative to the five-year average, CLSA said. “With the battle for market share intensifying, Bharti Airtel with 32% revenue share is gaining (up 1% in 1SFY21). Reliance Jio gained 4% in 1SFY21 from 20% in the previous two years despite cheaper rates; Vodafone Idea is looking to stop the 3QFY21 share loss. Therefore, in the land sector, floor rates are a better way to move forward, since not only should the rate increase be greater, but it is unlikely to alter market shares, ”added CLSA.
Motilal Oswal said its channel checks indicated that Airtel continues to gain competitive ground, adding strong 4G subscribers in the holiday season, following recent healthy additions in 2QFY21.
The Airtel Capex at 2HFY21E will be similar to the 1H Capex of ~ Rs90b / Rs110b at the India / consolidated level. Therefore, the Capex for FY21E should be INR180b / INR220b, which is ~ 15% lower compared to FY2020 levels, Motilal Oswal noted.
Furthermore, it could incur a one-time capex of Rs 130 billion for spectrum renewal at the reserve price as its spectrum is expected to expire by 2QFY22 and would require an early auction.
Airtel is expected to generate a post-Rs64b FCF interest in FY22E after factoring in the Rs130b spectrum renewal cost, Motilal concluded.
Both brokerage firms Motilal Oswal and CLSA maintained a ‘BUY’ rating for Bharti Airtel at a price of Rs 650 and Rs 505.15, respectively.