(Vi) is likely to see almost 70% and 14% jumps in operating income and revenue respectively in FY22 following its decision to hike all prepaid tariffs by up to 25%, provided the loss-making telco doesn’t suffer any major resulting market share losses, say analysts.
The price hikes, they added, would improve cash flows and raise visibility on near-term improvement in the telco’s financials, and in turn, aid its prolonged fund-raising efforts, which is crucial for Vi to ramp up 4G operations and compete effectively with Reliance Jio and Bharti Airtel.
Motilal Oswal estimates Vi’s latest tariff hikes should offer “incremental revenue/Ebitda of INR55bn/INR38bn (2QFY22 annualised), i.e. a 14%/68% increase”. It also estimates the price hikes, catering to as much as 70% of Vi’s revenue pool, to boost the telco’s average revenue per user (ARPU) to Rs 128 this fiscal from Rs 109 reported in the September quarter.
Loss-making Vi followed Bharti Airtel, which had earlier this week announced 20-25% hikes in prepaid rates, effective November 26. Vi’s new prepaid rates will be effective from November 25.
A day after the tariff hikes announcement, Vi shares jumped over 5.3% intraday, and traded 4.3% higher at Rs 11.03 Wednesday early afternoon on BSE. Airtel shares too were up around 1% to Rs 766.45 on the exchange.
Analysts expect Mukesh Ambani-led Reliance Jio to follow Airtel and Vi shortly in taking price hikes but say the telecom market leader could still maintain its pricing discount to the older carriers. “We see a reasonable chance of Jio taking 20% price increases, which would still preserve its 15-20% discount to Bharti/Vi’s prepaid plans that are almost identical,” IIFL said.
The brokerage added it sees “a high chance of Jio announcing its new plans before November 26,” the day Airtel’s new prepaid rates take effect. CLSA said Vi’s latest prepaid hikes can increase its revenues by 10%, while the higher 25% hike taken in the base prepaid rate to Rs 99, can boost revenues by another 7%.
It also expects the price hikes – on the back of the four-year moratorium on adjusted gross revenue (AGR) and spectrum payments — to help Vi “close its planned Rs 25,000 crore fundraising, which the company aims to conclude by end-FY22.
Vi’s managing director Ravinder Takkar recently said the telco is in the process of updating its business plans and recalculating funding needs. Besides investing in networks, Vi also needs cash to participate in 5G auctions likely in the second quarter of calendar 2022.
Motilal Oswal, though, cautioned that “the significant amount of cash required (by Vi) to service its debt, leaves limited upside opportunity for equity holders, despite the high operating leverage opportunity from likely improved ARPU”.
In the September quarter, Vi had posted a Rs 7,144.6 crore net loss on a revenue of Rs 9,406.4 crore. Ebitda was Rs 3,862.9 crore while debt was around Rs 1.94 lakh-crore. The carrier lost another 2.4 million customers in the July-September quarter to end the period with 253 million users compared with over 408 million when erstwhile Vodafone India and Idea Cellular had merged in August 2018.
The prepaid tariff upticks come after the government announced a spate of telecom relief measures in September aimed at easing financial stress in the sector and providing a lifeline to debt-laden Vi, and retaining a three-player telecom market structure.