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Telecom tariff hike: Vodafone Idea surges 30%, Bharti Airtel up 6%; brokerages bullish on Airtel

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Telecom tariff hike: Vodafone Idea surges 30%, Bharti Airtel up 6%; brokerages bullish on Airtel

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Shares of telecom operators Bharti Airtel and Vodafone India rose on Tuesday after both the firms announced intent to hike mobile phone calls and data tariffs from December.

Telecom tariff hike: Vodafone Idea surges 30%, Bharti Airtel up 6%; brokerages bullish on Airtel
Shares of telecom operators Bharti Airtel and Vodafone India rose on Tuesday after both the firms announced intent to hike mobile phone calls and data tariffs from December. The two companies said that they need to hike tariffs for the viability of operations.
Bharti Airtel rose as much as 6.5 percent to Rs 436 per share on the BSE, while Vodafone Idea surged 29.7 percent to Rs 5.8 per share.
At 9:20 am, Bharti Airtel was trading 5.7 percent higher at Rs 432.45, while Vodafone Idea was up 27.9 percent at Rs 5.7. Meanwhile, Bharti Infratel added 6 percent at Rs 240.
In comparison, the BSE Sensex rose 0.4 percent or 154 points to 40,438.
Post the tariff hike announcement, Jefferies upgraded Bharti Airtel to 'hold' from 'underperform' and raised its target price to Rs 407 per share, while it downgraded Bharti Infratel to 'underperform' from 'hold' and slashed its target price to Rs 180 per share.
According to the brokerage, despite the proposed tariff hike, Vodafone Idea will still lose a majority of high average revenue per user (ARPU) subscribers to Bharti Airtel, while Airtel should gain 500 basis points market share. It factors in a 21 percent price hike in FY21 and expects the government to provide a moratorium on spectrum adjusted gross revenue (AGR) dues for two years.
Meanwhile, Morgan Stanley also raised Bharti Airtel's target price to Rs 410 per share from Rs 360 earlier, while maintaining an 'equal-weight' rating. "Most important measures could be a waiver of interest/penalties/interest on penalties on AGR dues. However, possible floor pricing may lead to sustainable tariff increases going forward," noted the brokerage. It also added that the company is well-positioned in the sector both from a leverage and strategy perspective.
"We consider this as a positive catalyst for the sector and expect the telco stock price momentum to continue. We believe telcos will largely focus on raising tariffs for smartphone users (rather than feature phone users) as 1) smartphones users could afford Rs 10-20 tariff hike without any meaningful impact on usage; 2) Feature phone users are very price sensitive and could churn off — as evident with launch of minimum recharge of Rs 35," said BofAML in a report.
It added that while Vodafone Idea is most levered to upside led by a tariff hike given a pure-play telco, it believes Bharti Airtel is the best way to invest in the sector on back of its favorable risk reward. It maintained buy on Bharti Airtel.
Last week, CNBC-TV18 reported that the committee of secretaries (CoS) is mulling setting a minimum price for mobile calls and data. The CoS has sought recommendations from the Department of Telecom (DoT) on setting a minimum charge for all tariffs for telecom players and also assessing the impact it will have on telecom operators.
Vodafone Idea and Bharti Airtel said that despite the growing demand for services, prices for mobile data are very cheap in India and have been eroding the viability of the sector.
For Q2 both the telcos reported their highest ever quarterly loss. Vodafone Idea reported a consolidated net loss of Rs 50,921 crore for Q2FY20—the highest ever quarterly loss reported by an Indian company. Bharti Airtel posted a quarterly loss of Rs 28,450 crore. The losses stemmed from provisions set aside by the two firms for unpaid government dues after the Supreme Court ruled in favour of the government in the AGR case.
Disclosure: Network18, the parent company of CNBCTV18.com, is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.
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