Telecom Sector Check - Tariff Hikes – Much-Awaited And Positive; Seems Priced In: Dolat Capital

Dolat Capital Report

Contrary to the past two tariff increases, Reliance Jio has taken a lead this time by announcing ~17-25% (average ~20%) in tariff hikes across popular plans, in-line with expectation. Two other positives are-

1. tariff increases in the postpaid segment too, along with prepaid,

2. Plan for 5G monetization viz. unlimited 5G data will be available on all 2GB/day and above plans i.e. restricting it in widely popular 1.5GB/day plans.

We expect Bharti Airtel Ltd./Vodafone Idea Ltd. to follow with similar hikes except in the 2G segment (~25/30% of customers respectively). The tariff increase is a significant positive and had been key re-rating trigger in recent past driving sharp stock price performance of telcos versus Nifty. In the absence of a near-term catalyst, the positive news looks priced-in especially for Bharti Airtel.

The bigger question is shall the sector multiple get re-rated higher (say 12 times enterprise value/Ebitda to 15 times for Bharti Airtel) in the medium-term due to strong earnings visibility and deleveraging, seems, but from a longer-term perspective no.

Yet we are keeping our multiple unchanged due to lack of catalyst in the near-term. Price increase shall lead to a modest change in estimates for Jio/Bharti.

We rollforward our target price from FY26 to H1 FY27E. Our revised target price for Bharti Airtel is Rs 1,440 from Rs 1,225 (+18%) at 12 times EV/E for India Wireless and for Jio (per share of Reliance Industries) is Rs 1,450 from Rs 1,365 @ 11 times EV/E. Reiterate Reduce on Bharti Airtel.

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