Vodafone Idea had gained 21.5 percent in the previous session also and was quoting at Rs 5.53, up Rs 1.06, or 23.71 percent on the BSE at 1058 hours IST.
Bharti Airtel touched its 52-week high of Rs 435. It had climbed 4 percent in the previous session and was quoting at Rs 433.10, up Rs 23.95, or 5.85 percent today.
“Our assessment suggests the possibility of 15 percent hike by Vodafone Idea (VIL) and Bharti. For both VIL and Bharti the hike will be on 45 percent of their customer (non-feature phone) or 70 percent of their revenue. For Bharti it will be on 40 percent of consolidated EBITDA,” Motilal Oswal said.
This hike on the above revenue and assuming 70 percent EBIDTA margins on incremental revenues could mean around 50-60 percent increase in EBIDTA for both, according to the brokerage house.
It feels for VIL, though the percentage jump might look steep however on a low base of Rs 4,000 crore EBIDTA (Q2FY20 annualised) and in the context of debt of Rs 1.2 lakh crore would change little to manage its capex and interest cost requirement.
For Bharti, the above calculation on a consolidated basis could mean 25 percent estimated jump in EBIDTA estimates which for free cash flow (FCF) positive company should further aid valuations, Motilal Oswal said.
Both companies decided to increase prices with effect from December 1, 2019, but have not disclosed the amount of hike.
“To ensure that its customers continue to enjoy world-class digital experiences, Vodafone Idea will suitably increase the prices of its tariffs effective December 1, 2019,” Vodafone said in its BSE filing.
“The acute financial stress in the telecom sector has been acknowledged by all stakeholders and a high-level Committee of Secretaries (CoS) headed by the Cabinet Secretary is looking into providing appropriate relief,” it added.
Bharti said the telecom sector was highly capital intensive with fast-changing technology cycles that require continuing investments. It is, therefore, extremely important that the industry remains viable to support the vision of Digital India, it added.
Accordingly, Airtel will appropriately increase price offerings in the month beginning December, it said.
VIL said Mobile data charges in India were by far the cheapest in the world even as the demand for mobile data services continues to grow rapidly.
Both incumbent telcos, post the Supreme Court adjusted gross revenue (AGR) ruling, provided for the licence Fee and SUC related dues (including interest and penalties) in Q2FY20, which made for a visibly ugly earnings report card. As a result, Bharti Airtel reported a loss of Rs 23,045 crore in Q2FY20 and VIL’s loss stood at Rs 50,921 crore for the quarter.
However, the key positive takeaway has been the amplified talks of government measures to support industry and indicative intent as suggested by media as well as Vodafone Idea (VIL).
“Similarly, on the operating front, while Bharti Airtel (Airtel) reported another strong performance, the struggle of VIL was clearly visible. Amid the looming liability of Rs 34,260 crore and Rs 44,150 crore for Airtel and Vodafone, respectively, we believe that waiver on AGR related payment (at least interest, penalty, etc, which forms 75 percent of dues) will hold the key. Nonetheless, VIL notwithstanding payment waiver would also need some capital infusion to stay afloat,” ICICI direct said.
The brokerage maintained a buy rating on Airtel with a revised target price of Rs 470 per share and revised rating for VIL to under review.
Jefferies upgraded Bharti Airtel to hold from underperform and raised target to Rs 407 from Rs 280 per share, but downgraded Bharti Infratel to underperform from hold and also cut target to Rs 180 from Rs 265 per share.
The global brokerage house maintained its hold rating for Vodafone Idea and slashed target price to Rs 2.40 from Rs 8 as company would still lose a majority of high ARPU subscribers to Bharti Airtel.
Bharti Airtel should gain 500bps market share, it said.
“We expect price increase from Q1FY21, though valuations are at 9x FY22e mobile EBITDA. We factor in 20 percent price hike in FY21, but the risk in postpaid & enterprise keeps upside limited,” it added.
Over medium term, move will lead to pricing being a regulatory decision, said Jefferies which expects government to provide moratorium on spectrum and AGR dues for 2 years.
While having equalweight rating on the stock, Morgan Stanley raised target price on Bharti Airtel to Rs 410 from Rs 360 as company is well positioned in the sector both from a leverage & strategy perspective.
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