Airtel and Jio Tariff Hikes: Experts Predict Telecom Sector Re-rating

Reliance Jio and Bharti Airtel have announced tariff hikes. This move will boost the companies’ average revenue per user and profit, as per the experts.

Experts had anticipated these tariff hikes after the Lok Sabha elections due to declining revenues and margins in the sector. Telecom companies need capital to invest in spectrum and cutting-edge technologies. Experts believe the this is a positive step by telecom India.

“The Indian telecom sector is ripe for a re-rating due to a unique combination of factors. With just three major players—Bharti Airtel, Reliance Jio, and Vodafone Idea—controlling the market, even minor increases in ARPU can significantly impact their stock prices,” said Trivesh D, Tradejini.

With elections and spectrum auctions concluded telecom companies have raised tariffs by 20-25%.

After Reliance Jio announced a price hike on its monthly and annual plans, Bharti Airtel also increased mobile tariffs by 10-21%. It will be effective from July 3, 2024.

Also Read | 10 Best Shares to Buy for Long-Term

Prashanth Tapse the Senior VP Research Analyst at Mehta Equities said that the industry had been waiting for elections. 

The telecom sector is the second-largest customer in India as compared to global.

Tapse observed that after 2021 the industry faced high costs due to low ARPU and couldn’t raise tariffs for multiple reasons. The recent spectrum auction saw a tepid response, with the government collecting ₹11,340.78 crore—the third-lowest since competitive bidding began in 2010.

After the new hikes in plans experts are showing believe that there are re-rating opportunities in the sector.

Ankit Jain, Vice President and Sector Head of Corporate Ratings at ICRA Limited, highlighted that the latest tariff hikes will increase ARPU and could result in additional operating profits of around ₹20,000 crore for the industry once fully absorbed. This will enhance profit generation, allowing the industry to undertake deleveraging and fund technology upgrades and network expansion.

ICRA expects industry revenues to grow by 12-14% in FY25, translating into a healthy expansion in operating profits by 14-16%. This is likely to improve the industry’s return on capital employed (ROCE) to over 10% for FY2025. ICRA also projects the industry to report ₹3.2-3.3 lakh crore in revenue with operating profits of ₹1.6-1.7 lakh crore in FY25.