After almost two years, which is very much needed throughout the council increase in telecommunication tariffs is here. Bharti Airtel Ltd and Vodafone Ideas Ltd has increased by around 20-25 percent of the tariffs for their prepaid plans.
The new rates kicked to the customer’s idea of Vodafone from November 25, a day before the increase in Bharti Airtel began to apply.
Impact on Arpu
The increase will help increase the average income and revenue per user (ARPU) of the two companies. For the quarter ended September 30, 2021 (Q2FY22), Arpu Bharti and Vodafone were at Rs 153 and Rs 109.
ICICI Securities estimates that Arpu Bharti increased by Rs 26 to RS 179. Arpu Vodafone ideas must increase by Rs 18 to RS 127.
“(Bharti) Q2FY22 Annual Consolidated EBITDA reaches the RS 55200 Crore and the tariff increase must add 12.6 percent for this,” said ICICI Securities’ analyst in a report on November 24.
According to brokerage companies, EBITDA’s annual consolidation of Q2FY22 Vodafone ideas reached Rs 15,500 Crore and the increase must add 25 percent to it.
EBITDA is income before interest, tax, depreciation and amortization. This is an important profitability metric for the company.
Is this enough for Vodafone ideas?
The idea of Vodafone is the most vulnerable from three large private telecommunications companies in India because of its very large debt and losing market share to rely on Jio and Bharti. Road recovery remains challenging for Vodafone ideas.
The increase will help increase the cash flow of the idea of Vodafone and also helps in the grazing efforts of funds.
After saying that, the level of increase in EBITDA needs to be monitored as a December 2019 increase does not provide an encouragement expected for the company.
“The increase in EBITDA which is expected to run a significant risk of EBITDA dilution due to the market share,” Write analysts from Motilal Oswal Financial Services Ltd. in a report on November 23.
The broker company said the loss of sustainable market share and customer gap has the potential to thwart a cash generation similar to the previous increase.
“To stabilize income, VIL requires large funds to significantly accelerate the current network investment of Rs 5000 Crore, which is much lower than Bharti / Reliance Jio Rs 15,000-20,000 Indian Capex India Crore, even though the 4G network is much deeper,” it was said.
IIFL Securities estimates that the market share of Q2FY22 Jio’s revenue at 41 percent, Bharti 36 percent and Vodafone’s idea was 19 percent.
The government has been in September announcing aid package, ensuring the market of three private companies in India, for now.
The moratorium on customized gross income (AGR) and spectrum is expected to offer relief of annual cash flow around Rs 24,000 Crore, say analysts.
On September 30, Vodafone cash ideas and cash equivalents stood around Rs 250 Crore and had clean debt of Rs 1,94,530 Crore.
What is next?
All eyes are now in Jio. If and when Jio goes for an increase, analysts expect it to maintain the discount on the idea of Bharti and Vodafone.
“JIO has not announced any price intervention, but we see a reasonable opportunity to take around 20 percent of price increases, which will preserve the discount for Bharti’s plan at 15-20 percent,” said IIFL Securities report on November 23.
The tariff increase will increase the growth of Jio’s income and also augur well for the telecommunications sector. However, if JIO does not raise tariffs, there may be a prospective customer Churn, which will be a negative development for the idea of Bharti and Vodafone.
When things stood up, Bharti Airtel’s shares touched the highest 52-week highs on the national stock exchange on November 25. This calendar year, shares have appreciated 48 percent, showing investors are a good factor from the short-term positive news flow. On the other hand, Vodafone shares the ideas remained flat during the period.