12 Jul , 2024 By : Debdeep Gupta
Brokerage firm Investec raised its price target for Bharti Airtel stock by a whopping 60.5 percent to Rs 1,560, while retaining its hold call as it sees the telecom major on a steady path of deleveraging. This comes after Bharti Airtel, along with its rivals Reliance Jio and Vodafone Idea, recently announced tariff hikes of 20-25 percent, in a bid to boost their average revenue per user (ARPU) and profitability.
Investec expects tariff hikes like these could become an annual affair for telcos for the next few years. These price hikes, according to Investec are slated to benefit all players within the sector by improving ARPU and enhancing return on capital employed (RoCE), ultimately aiding in debt reduction.
Analysts at BofA Securities seconded the view and stated that the recent round of tariff hikes would enhance cash flows and return ratios across the telecom sector. "Vodafone Idea will be the biggest beneficiary of the tariff hike, as it is a pure-play mobile operator, followed by Bharti Airtel and then Reliance Jio," the brokerage said.
Other analysts on the Street also share a similar view and see price hikes in a positive light. Previously, Morgan Stanley had estimated blended ARPU for Bharti Airtel and Reliance Jio to benefit 16-18 percent from these tariff hikes.
Analysts at Bernstein also projected that the recent tariff hike will help Bharti Airtel's average revenue per user (ARPU) stabilize to over Rs 280 by FY26 and reach Rs 300 by FY27.
Currently, Airtel boasts the highest ARPU in the market at Rs 209, followed by Jio at Rs 181.7 and Vodafone Idea at Rs 146, as of the end of Q4 of FY24.
Bharti Airtel also stated the importance of its ARPU surpassing Rs 300 for the financial health of the telecom sector in India. "We believe that this level of ARPU will enable the substantial investments required in network technology and spectrum and offer a modest return on capital," the telecom firm stated.
Investec also feels the current market structure in the telecom industry appears better placed to drive improved pricing.
In addition to Bharti Airtel, Investec also initiated coverage on Bharti Hexacom with a 'buy' call, assigning it a target price of Rs 1,240, implying an upside of around 18 percent from the previous closing price. The firm also believes the company is better placed to benefit from tariff hikes.
Investec also lauded Reliance Jio's growth as it stands close to achieving its stated target of reaching 50 crore subscribers. However, the brokerage feels incremental growth for the company will be driven more by a spike in ARPUs rather than subscriber addition.
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