Telecom tariff hikes: Telecom operators have announced average tariff hikes of 15-20 per cent, projected to drive a 25 per cent EBITDA growth in FY25E. Reliance Jio (RJio) initiated a 19 per cent price hike, followed by Bharti Airtel and Vodafone Idea Limited (VIL) with 15 per cent and 16 per cent hikes, respectively. These increases apply to both prepaid and postpaid plans, although RJio has excluded JioBharat and JioPhone users.

Bharti and Vodafone Idea implemented modest hikes of 11 per cent in entry-level plans to minimise subscriber churn in 2G, while popular plans saw increases of 17-18 per cent, compared to RJio’s 19 per cent hike. Consequently, RJio remains the affordable plan provider, offering quality services at the lowest price, brokerage firm Motilal Oswal said.

The price hikes align with market expectations and will raise the exit ARPU for FY25 by 17 per cent for RJio (Rs 213), 20 per cent for Bharti (Rs 251), and 20 per cent for VIL (Rs 175), resulting in a 26 per cent/24 per cent/26 per cent increase in EBITDA for RJio/Bharti/VIL. While the gap between RJio and Bharti/VIL has narrowed in entry-level plans, it remains unchanged for premium and postpaid plans, the Mumbai-based brokerage said.

The tariff hikes, the first in two years, are seen as a positive step for the telecom industry, providing relief for VIL and improving return ratios for Bharti and RJio. However, with increased tariffs and higher mobile number portability (MNP) at 11-12 per cent of industry subscribers, some down trading and SIM consolidation are expected.

Following the tariff hikes, subscriber gains, reduced churn, 5G adoption, and increased data customers are anticipated as catalysts for telecom stocks. Analysts favor RJio and Bharti (target price Rs 1,680) while maintaining a Neutral rating on VIL (target price Rs 18).

Bharti Airtel and VIL price adjustments compared to RJio

Bharti Airtel and VIL implemented average price hikes of 15 per cent and 16 per cent, respectively, compared to RJio’s 19 per cent across prepaid and postpaid plans. Bharti and VIL took modest hikes of 11 per cent in entry-level packs to retain 2G customers, while popular plans saw a 17 per cent increase. RJio’s 20 per cent hike spanned entry and popular plans. Consequently, the gap between Bharti/VIL and RJio in entry-level plans narrowed to 5 per cent from 15 per cent pre-hike, while the gap in popular daily plans and postpaid plans remained unchanged, Motilal Oswal noted.

RJio’s new offerings and financial impact

RJio introduced JioSafe, a quantum-secure communications app, priced at Rs 199/month, and JioTranslate, an AI-powered multilingual communication app, priced at Rs 99/month. The 19 per cent tariff hike is expected to increase RJio’s FY25 exit ARPU by 17 per cent to Rs 213, resulting in an incremental revenue of Rs 19,800 crore and EBITDA of Rs 13,600 crore.

Bharti Airtel’s financial outlook

Bharti’s 15 per cent tariff hike, coupled with organic ARPU growth, is expected to increase its FY25 exit ARPU by 20 per cent to Rs 251, generating incremental revenue of Rs 14,700 crore and EBITDA of Rs 11,000 crore. The company is projected to benefit from market share gains, improved ARPU, and contributions from non-wireless segments such as Home and Enterprise.

Vodafone Idea’s challenges

Vodafone Idea’s 16 per cent tariff hike, combined with organic ARPU growth, is expected to increase its FY25 exit ARPU by 20 per cent to Rs 175, resulting in incremental revenue of Rs 3,100 crore and EBITDA of Rs 2,200 crore. However, the company faces challenges due to its large debt and inability to generate self-sustaining cash flow. VIL’s capex plan of Rs 50,000-55,000 crore over the next three years is crucial for network support and churn reduction, but significant cash requirements to service debt limit upside opportunities for equity holders, Motilal Oswal said.

Key catalysts for the stock include a reduction in AGR liability, reduced churn rate, and potential future tariff hikes, the brokerage added.

Tariff hikes expected to boost telecom sector profitability: Report

Tariff hikes, the first in two years, are seen as a positive step for telecom industry, providing relief for VIL and improving return ratios for Bharti and Jio.

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