What's Next For Telecom Sector After Tariff Hikes? | NDTV Profit
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00:00Hello and welcome. You're watching the small and mid cap show. I'm Mahima. What's your journey. Well we have a telecom analyst
00:16lined up for you in the first half of the show today. But before we move on to that let's take a quick check on how the
00:21markets are panning out right now. Well in terms of the nifty 50 it's trading in a tight range of roughly 50 points.
00:28Country 10 points away from its days highs. It's up around 0.3 percent in trade. Sensex is also trading in a tight range of
00:35roughly 150 points country points to send higher roughly 30 odd points away from its days high. Now in terms of the broader
00:44markets where the broader markets are doing a tad bit better than the benchmark indices. The mid cap 150 is up around 0.5
00:52percent. And the small cap 250 is up around 0.7 percent in terms of the contributors on the nifty. Well something that's
01:01weighing in positively on the nifty today is party at the Infosys. There's a reliance. Sorry there's ICICI ban the school
01:09India. But something that's weighing down the nifty is reliance. Of course Kotak Mahindra LNT Sriram Finance. Well you know
01:17let's also take a quick look at what the advanced technical decline ratio looks like at present where it's skewed towards the
01:23buyers today. The ratio is roughly two is to one where there is around 1400 advances versus 600 declines. So slightly more than
01:31that two is to one ratio. Now let's let's take a look at what the sectors are doing. Nifty Realty is on a tear today followed by
01:39Nifty Metal also advancing. Let's quickly pull up Nifty Realty. There you go contributors. Suntech Realty is leading the pack with
01:486 percent gains. Brigade Enterprises with 4 percent. Prestige with 4 percent. Godrej Properties with around 2 percent. Let's also
01:57quickly pull up Nifty Metal contributors. The index is up around 1 percent. There you go. Only two in the red. A lot in the green.
02:07Tata Steel up 1.5 percent. NMDC up. There's also Nalco which is up. Now in terms of stocks on the buy side today that are
02:19buzzing in trade. There's Chennai Petroleum. There's Gamblin Fine Sciences. There's Trinix Performance. All of these are up and
02:28above in trade. Chennai Petroleum up around 11.7 percent. But something you know that's not doing well in trade today from the
02:36sellers side has is some Jupiter wagons. Jupiter wagons is down around 5 percent. There's Brightcom Group which is down. There's
02:45GE Power India which is not doing very well in trade. Let's also shift focus to some stocks that are buzzing on the back of
02:54brokerages. Let's pull up what Apollo Tires is doing. Well Morgan Stanley has maintained equal rate with a target price of 472 with a
03:02downside of 13 percent. The stock however is up in trade with around 1 percent of gains right now. Let's also pull up what HDFC Life
03:13is doing. Noama has come out with a report. It's given a target price of 780 was 760 earlier which gives an upside of 22 percent. But
03:22the stock is not reacting much. It's up around 0.3 percent. Let's also pull up Hudson Agro. Hudson Agro has been in focus today on the
03:32back of earnings. Good set of numbers. Revenue up 10 percent. EBITDA up 39 percent. Margins have improved from 11 to almost 14
03:40percent. Net profit is up 63 percent. And they've also declared a dividend of 6 percent. The stock is on a tear. It's up around 6.7
03:50almost 7 percent. Let's also pull up something like Century Textiles. The stock stock is buzzing in trade today on the back of news.
04:02Well let's also pull up something like Angel One came out with its result. What the stock is doing well the stock is down around 0.4
04:11percent. Not not doing much in trade. Let's also pull up Vedanta. Well Vedanta the company had opened its QIP and now has set a floor
04:18price of 461. And the QIP was approved around 21st of June. The stock is up around 0.7 percent. Let's also pull up what Lemon Tree
04:29Hotels is doing. It opened a 42 room hotel in Jim Shade for Jarkhand. The stock is up around 0.3 percent. But let's let's shift focus to
04:41the telecom sector today. Well the telecom stocks are buzzing post the Vodafone idea news on the AGR case. And to discuss more about
04:51this we're joined by Mr. Balaji Subramaniam the vice president of research at IFL Securities who joins us now. Welcome to the show Mr.
05:00Subramaniam. My first question to you is that you know now that Vodafone idea has sought this urgent listing of its curative plea. I want
05:10to understand that you know what are the kind of adjusted gross revenues due as of now. How much of it can you expect to be waived off.
05:20And similarly what are the respective dues for both Bharti Airtel and Indus Towers.
05:26OK. Thank you. Good morning. And I know it's good to be on your show. So firstly this AGR case has been going on for quite some time. And the most
05:44recent update has been that sometime late last year the Supreme Court allowed the telcos which is Vodafone idea and Bharti Airtel here to file a
05:57curative petition on the original AGR judgment which had slapped a pretty hefty liability on both these companies. So if you look at the latest balance
06:11sheet of these companies the AGR liability of Vodafone idea is around 70000 crores while that number for Bharti is around 36000 crores.
06:24So what exactly this curative petition implies or you know the potential outcome could be that the Supreme Court which had earlier taken a chance
06:38that whatever D.O.T. demands were served they cannot be disputed. Now I think you know the Supreme Court can you know in the event of a favorable
06:49verdict to telcos they can just say something like you know there is some flexibility where the D.O.T. and the telcos you know mutually negotiate
07:03and come out with their own sets of numbers. So based on what the companies have indicated in the past the potential relief on the liability front could be
07:16somewhere around 50 to 60 percent. Of course you know it is difficult to call out an exact number because these calculations are complex. They span across
07:25years and they are also in all 22 circles. So you know it makes it a little bit difficult to do exact math but a 50 60 percent potential relief
07:40cannot be ruled out assuming things grow telcos way. So if we can expect a waiver for our for around 50 60 percent of the total dues do you think
07:51that this thing is already priced in in the stock already or do you see that once the verdict comes in there will be a run up that you can see.
08:02I think a fair bit of it is priced in now. You know it is kind of difficult to call out what exactly is priced in today. But I think a fair bit of it is
08:15priced in and my sense is that a 50 percent relief may give some sort of a positive flip and may keep the rally going. But something like an outsized move
08:29is something which I really don't see. Of course for a couple of trading sessions the stocks may trade stronger. But after that they will probably you know
08:39see most of these gains being given up. But at least you know it does provide visibility especially when it comes to Vodafone ideas fundraising efforts.
08:51And in terms of the cash flow relief also there will be a decent bit of relief especially for Vodafone idea and to some extent for Bharti Airtel also. But anyways
09:03considering how strong Bharti Airtel's own balance sheet and cash flow position looks at least you know this relief will be somewhat incremental in nature
09:12rather than being radical. Got it. Mr. Subramaniam you know your views on Bharti Execom. The stock is on a tear today and this is you know after
09:22you know JP Morgan has initiated coverage and raised target price to 1 8 2 0. Now why Bharti Execom. Because you know comparatively it's a smaller
09:31company and it operates under the unpenetrated circles of you know Rajasthan and Northeast. So what are you your views with respect to this
09:39telecom company and where do you see the growth for this company. By the way you may have missed it. So other than JP Morgan I also initiated
09:49coverage on Bharti Execom today with a target price of 12 67. So keeping that aside my view on the stock is as follows. So right now we are in a we are in an
10:02environment of rising mobile tariffs and Execom is probably the only pure play mobile player. I do know Vodafone is also has a large exposure to
10:19India mobile business. But the issue is that you know there it's more of a bet on the turnaround in the company's fortunes. Here you have a player which is
10:30already strong gaining market share with a healthy balance sheet and it allows you to play the mobile market.
10:39Repair in Bharti Airtel's case you know it's in a way you know it has a mix of different businesses like DTH Enterprise and of course the Africa
10:51business. So in a way when you are buying into Bharti Airtel you are buying into a lot more other businesses as well which is not the case with
11:00Bharti Execom where you get to play the mobile tariff recovery. And you know one should not forget that the return to ratios of Execom are also
11:14somewhat superior to Bharti Airtel because the entity leases out fiber assets from Airtel. So to that extent both the capex intensity and the capital
11:26employed are lower which allows Execom to sport superior return ratios. And finally Execom also has a slightly superior spectrum holding
11:39profile compared to Bharti. So you know to that extent I think some of the premium which Execom commands in terms of valuation that is justified. And
11:49in a rising tariff environment I would expect these premium valuations to sustain. And you know considering the recent tariff hikes
11:58Mr. Subramanian do you expect that FY25 has more scope for tariff hikes for all three companies?
12:08I don't see another round of tariff hikes happening at least in FY25 because we have just seen the implementation of tariff hikes about a couple of weeks back.
12:20And now it will take maybe a quarter or two for the tariff hikes to reflect in the telcos numbers. So my sense is that you know at least my base case
12:32expectation is that the next round of tariff hikes happen sometime in late 2025. I think you know something to expect a tariff hike to be expected
12:46in this very fiscal year is probably you know kind of a little too far-fetched.
12:52Okay well Mr. Subramanian thank you so much for giving us those insights on the entire telecom sector and taking our time and speaking with us
13:00at NDTV Profit. It was a pleasure talking to you. Well with that it's time to slip into a short break. On the other side we'll bring you a conversation
13:08with Deep Industries Management to talk about the road ahead for the company. Stay tuned.