Indian telecom companies, particularly Bharti Airtel and Vodafone Idea, have significant headroom to implement another round of 15% tariff hikes in FY27, according to analysts at JPMorgan.
With affordable service rates and a supportive regulatory environment, these hikes are seen as necessary to maintain profitability and keep up with financial obligations like spectrum dues.
Why the Tariff Hikes Are Justified
JPMorgan’s report points to several factors that justify the potential tariff hikes. One primary reason is that Indian data yields remain some of the lowest in the region, at just $0.09 per GB.
When adjusted for GDP per capita, this figure is much lower than global standards, allowing telecom operators to increase prices without significantly affecting consumer affordability.
Additionally, mobile fees in India, measured as the Average Revenue Per User (ARPU) relative to GDP, are still among the lowest in Asia at 0.7%. With a growing digital economy and increasing demand for data services, raising tariffs could help telcos maintain profitability.
Bharti Airtel’s Position and Outlook
Bharti Airtel remains JPMorgan’s top pick in the Indian telecom sector. The brokerage firm expects another 15% tariff hike in FY27 to drive a 5-6% increase in wireless revenues and EBITDA for the company.
As Bharti Airtel continues to deleverage and improve Free Cash Flow (FCF), it is also projected to begin paying meaningful dividends from FY25 onward.
JPMorgan has raised Bharti Airtel’s target share price from ₹1,670 to ₹1,920 apiece, expecting steady growth in both revenue and profitability. The company’s focus on improving margins and maintaining subscriber retention in the face of competition bodes well for long-term performance.
Vodafone Idea’s Struggles and Strategy
The outlook for Vodafone Idea is a bit more complex. Despite JPMorgan’s upgrade of its rating to “Neutral” from “Underweight,” the company is still grappling with significant challenges.
The Supreme Court ruling on Adjusted Gross Revenue (AGR) dues means that Vodafone Idea must continue to raise tariffs to cover its obligations, including spectrum and AGR payments.
JPMorgan has raised Vodafone Idea’s target price to ₹10 per share, up from ₹7 previously. While this is a positive development, analysts caution that the company is still in the early stages of executing its turnaround strategy. Vodafone Idea will need to roll out significant capital expenditures to halt subscriber losses and regain market share.
Tariff Hikes as a Financial Necessity
The rationale behind the tariff hikes is also supported by the need for Indian telecom operators to manage high levels of debt and regulatory payments. With spectrum dues piling up, especially for Vodafone Idea, annual tariff increases are becoming a financial necessity.
Additionally, Indian telecom operators are faced with increasing capital expenditure requirements to expand 5G services and improve network quality. Tariff hikes would provide the financial cushion needed to fund these expansions while meeting the government’s stringent payment schedules.
Regulatory Environment and Comparisons with Asia
India’s regulatory environment remains relatively benign, offering a conducive atmosphere for telecom operators to raise tariffs without facing severe backlash. Compared to other Asian countries, Indian mobile service rates are still highly affordable. This provides additional room for tariff increases without significantly impacting demand.
Moreover, the continued low data yield relative to GDP means that India still has the potential to increase mobile fees while staying competitive in the global market. Countries like Singapore, Malaysia, and even China charge considerably more for mobile data, offering a clear justification for India to increase its telecom tariffs.
Telecom Sector Performance and Projections
JPMorgan has also revised its forecasts for other major players in the telecom sector. Bharti Hexacom and Indus Towers are expected to report solid growth, driven by the upcoming tariff hikes.
Indus Towers is JPMorgan’s top pick among telecom tower companies, with the brokerage firm expecting continuous tower additions and steady payments from Vodafone Idea.
For the second quarter of FY25, Bharti Airtel is projected to report 6.7% quarter-on-quarter growth in wireless revenue, largely due to a 9% increase in ARPU. Vodafone Idea, on the other hand, is expected to report subscriber losses but will benefit from ARPU growth driven by recent price hikes.
Indus Towers is expected to see 4% growth in revenue, supported by continued tower expansion and steady payments from telecom operators.
Conclusion
In summary, according to JPMorgan’s latest analysis, Indian telecom companies have substantial headroom for another 15% tariff hike by FY27. The combination of affordability, low data yields, and necessary financial obligations makes this increase not only feasible but also essential for maintaining profitability in the coming years.
Investors should monitor closely how Bharti Airtel and Vodafone Idea navigate these price increases and any regulatory developments that could influence the sector’s future performance.
Disclaimer
This article is for informational purposes only and does not constitute financial advice. Investors should perform their own research or consult a financial advisor before making any investment decisions.
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