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00:00Nithin Soni, Senior Director at Fitch Ratings and Balaji Subramaniam, Vice President of
00:04Research at IFL Securities joins in.
00:06Nithin, I'll start with you on this one.
00:08What does this hike imply?
00:10Since it's not across the plans, but it's a strong move nevertheless.
00:15You've had Bharti come in this morning with a 10 to 21 percent hike.
00:18Jio, of course, went and hiked 12 to 25 percent.
00:22This is significant because one, while the market was expecting a tariff hike, the quantum
00:27is much higher than expected.
00:28Yeah, thanks for having me on the show.
00:32So we rate Reliance at BBB flat stable on the foreign currency IDR and local currency
00:38IDN is BBB plus stable.
00:40I think this is definitely credit positive because we have been expecting that a deadline
00:46tariff hike will be coming in the market.
00:50And now the top to 10th course, Reliance, Jio and Bharti have deployed significant sum
00:55of money on the 5G expansion.
00:58So it was it was imminent that such a headline tariff hike will be announced anytime soon.
01:03So this is a welcome step.
01:04And we do expect their average revenue per user to increase by 15 to 20 percent on a
01:11year on year basis in the next 12 months with this tariff hike and also along with the fact
01:17that a lot of consumers are moving to higher data plans, they are consuming more data.
01:24India is anyway one of the one of the highest market where the data consumption is very
01:29high compared to other regions.
01:32And as I think one of your colleagues was telling, I think Vodafone India needs the
01:37tariff hikes the most in this situation because they have been struggling to pay their spectrum
01:44dues and the payments to the tower companies.
01:47So it will I think it will be a matter of time that they will announce similar tariff
01:51hikes.
01:53I would also say that we will expect more tariff raises, I think, in the future, because
02:03Bharti's management have been quite vocal, they have been publicly saying that they want
02:07to see the average revenue per user at Rs. 300 and they need higher headline tariff definitely
02:14to monetize the large 5G investors.
02:18Okay, well, Balaji Subramaniam is also with us and Balaji, just take a moment and tell
02:27us that is this the first of the many that you believe because of hikes that could have
02:34come in because just the fact that spectrum auction was muted, there is Jio which is leading
02:38this price hike, which means that maybe competitive intensity is now being given less importance
02:45versus monetization.
02:47Does this mean that it will be first of the many hikes over the next 24 months?
02:52And does that therefore auger well for the earnings and balance sheets of the telcos?
02:56Good morning, thanks for having me on the show.
03:00I would say that, you know, to call it first of many hikes over a 24 month period would
03:07be probably, you know, stretching it a little too far.
03:11But, you know, frankly, what I think is that one can probably have a similar sized tariff
03:17increase, maybe 12 to 18 months down the line.
03:21And you know, if that also materializes, then Bhartiya Airtel should be able to achieve
03:28the 300 rupee medium term ARPU target that they have been talking for many years now.
03:33Of course, as far as the need for the tariff hikes was concerned, of course, we haven't
03:40seen any outright across the board tariff increases since December 2021.
03:47And so, in a way, it was highly overdue, considering the fact that the telcos spent big on 5G spectrum
03:56in the 2022 auctions.
03:57And, you know, let us not forget that at some point Reliance will also have to provide an
04:04exit for the investors in Jio platforms through an IPO.
04:09So all of those considerations were there in mind.
04:13And if you look at the return ratio, even the profitable telcos like Jio and Bhartiya
04:19Airtel made today at current tariffs, they are in high single digits.
04:25So, you know, I would expect, you know, it was just a matter of time before this tariff
04:29hike happened.
04:30And, you know, maybe we will have one more significant tariff hike in the next 12 to
04:3618 months.
04:37That's some time away.
04:38Nitin, would your assessment be, I mean, I don't know if you have an assessment on when
04:42can the price hikes happen, but with an assumption that this one has happened and there could
04:46be another one anywhere between the next month to the next 24 months.
04:50What does it do per se to have you view the strength of the franchise of any of these?
04:56Because, I mean, we know Vodafone is kind of coming out of the blinkers, if you will,
05:01but with some serious fund infusion, talk of some debt being raised as well and banks
05:06being open to doing that too.
05:08How do you view this whole piece then?
05:10No, I think, see, we have come a long way in terms of the industry consolidation.
05:15We used to have over 10 operators.
05:17Now we have two plus one and the two being are very strong.
05:22They have a very strong balance sheet.
05:24Vodafone idea is struggling.
05:27So they have all the motives to and they intend to drive prices higher.
05:32They have invested a substantial sum of money in the 4G spectrum and the 5G spectrum in
05:372022.
05:38So they need to monetize all these large investments and generate a decent return on investment
05:45for their investors.
05:47So it's tough to say when the next hike will come, but I think our view is that it will
05:52surely come, whether it's coming in 12 months, 18 months or 24 months.
05:57If you look at the behavior of these telcos, the previous tariff hikes were mostly led
06:02by either Bharti or Vodafone idea, but this, I think this is a pleasant surprise.
06:07I would say that this time it is led by Reliance Jio, which, you know, since its inception
06:13has been playing the role of expanding the market with higher data consumption, keeping
06:19the prices lower.
06:20But I think now clearly with this action, you can say that Reliance Jio, they also want
06:26to monetize their large investments and expand their margins and expand their revenue growth.
06:32So I think it's a very welcome move and probably the next one could happen in the next 12 to
06:4024 months.
06:41Right.
06:42Balaji, what do you feel, I mean, do you think this is reading the signs here?
06:47Because like Nitin also indicated, up until now, it was either Bharti or Vodafone taking
06:51a lead in terms of a price hike.
06:54Reliance is so focused on increasing market share, it was a third player for whatever
06:57it's worth.
06:58From this action, it very much seems that the leadership now is with Jio.
07:03Would you agree?
07:04And keeping that in mind, how would you approach the stocks of these telcos?
07:10See, I would think that, you know, typically what happens in most markets is that the leader
07:15is the one who takes tariff hikes.
07:17In India, you know, since Reliance Jio was in market share gain mode for the initial
07:27five-year period, Bharti or Vodafone idea ended up playing the role of the leader when
07:34it comes to initiating tariff hikes.
07:36But now Reliance Jio has become a mature market leader and they are still seeing market share
07:44gains, but they are more or less in a mature phase.
07:48So, I think, you know, it is just right that the market share leader goes ahead and takes
07:55tariff hikes.
07:56So, to that extent, you know, it's a positive that Reliance Jio is kind of leading the way.
08:03As far as the stock price performance is concerned, I think the stocks have fallen a little bit
08:09today because of the profit booking that must have happened because at the end of the day,
08:17the kind of tariff hikes which we have seen were largely in line with what the street
08:21was expecting.
08:22So, it was not like, you know, there was a positive surprise here.
08:24This has been anticipated for quite some time and the increase is almost exactly in line
08:31with what most investors had in mind.
08:34So, going ahead, I think, you know, at least the near-term gains of the depot stocks especially
08:44could be capped because the run-up has been quite healthy in the last 3-4 months.
08:51In this space, I would think Indus Towers could still offer some value because, one,
08:57it will gain from Vodafone ideas, fundraise and 4G rollout.
09:01And two, once Bharti is done with its rural 4G rollout, Indus' FCR will improve, which
09:08in turn will result in, you know, dividend payouts getting received.
09:12So, you know, at this point, I would probably, you know, play this, I would see Indus as
09:16the best proxy to play the improving industry structure from a stock perspective.
09:21Just before we wrap up, Balaji, a word on Indus because the indirect beneficiary out
09:26there, what's the view?
09:28So, that's what I said.
09:30Sorry if I missed it, yeah.
09:32Yeah, so, it will benefit from, you know, Vodafone ideas, 4G rollouts and two, as the
09:39FCR improves, you know, the dividend also would be reinstated because in the last couple
09:44of years, Indus had suspended paying dividends because of Vodafone ideas troubles and also
09:49because of the elevated capex that they were doing because of Bharti's 4G rural rollout.
09:56Now, you know, with both these things behind, the dividend payouts should resume maybe in
10:01the next 6-9 months.
10:03So, you know, we have a 6-7% dividend yield as well as a 7-8% stock price appreciation
10:10potential.
10:12Okay, dividend yield appreciation, Indus Towers features in that list and a dip today due
10:17to profit booking, but otherwise, Balaji seems constructive.
10:19Balaji, thanks for joining in and giving us that perspective.
10:22Really appreciate your time.
10:24Nitin, we are out of time completely.
10:26We have HM Bangur of Shree Cement waiting, but just one quick question, Nitin, to you.
10:29What is it that you are watching out for next when you analyze what telcos are doing?
10:3360 seconds, Nitin, please.
10:36I think the next leg of growth is definitely going to come from the 5G adoption.
10:41So, that is the metrics we need to watch out for, that how many consumers are moving from
10:464G to 5G and that is the next leg of, you know, the driving factor for the data consumption.
10:52We are already sitting at over 20 GB per month per subscriber data consumption, but that
10:57can lead to much higher if the 5G adoption is this much faster.
11:01And that will be, you know, also driven by the ecosystem, the number of apps we have
11:05and the number of, you know, the data streaming, all the worlds of Netflix and video streaming.
11:12I think more and more that will drive the higher data consumption.
11:16Right.
11:18Thank you, gentlemen.
11:20Great talking to both of you and giving us, and thanks for giving us that perspective,
11:22that much-needed perspective, actually, what this tariff hike really means for the sector,
11:25ARPUs and the balance sheet of the individual companies.