Delay in price hike, weak Q2 results may play spoilsport for Bharti Airtel

There could be earnings cuts and lower target prices if the hikes don't materialise this year

The Bharti Airtel stock fell close to 5 per cent on Monday, on account of concerns that price hikes — the single-biggest trigger for the sector and telco — may not take effect in FY21. 

The Street expected price hikes after the Supreme Court’s verdict on the adjusted gross revenue or AGR case on September 1, and the same was to be initiated by Vodafone Idea (Vi).

However, following Vi’s announcement of its plan to raise Rs 25,000 crore, there were worries that a price hike might not happen immediately and be pushed to the last quarter of FY21. 

Besides, a near-term concern is the weak set of results for the September quarter owing to seasonality factors and downtrading. 

In addition to Vi’s fundraise decision, how market leader Jio will react to a price rise is another question. Naval Seth and Sonali Shah of Emkay Research say: “One potential reason for the absence of a tariff hike may be Jio’s decision to not follow suit, in a bid to gain market share given that Vi remains financially weak.”  

The brokerage believes Jio’s aggression on capturing feature phone subscribers, who are price-sensitive, may result in the company avoiding a price hike. 

If that’s the case, neither Airtel nor Vi would like to take the first step as this could lead to market share loss in the entry-level segment. 

Though Airtel is in a position to pay its dues and fund its capex, the telco has consistently maintained that the current average revenue per user (Rs 157 in Q1FY21) is inadequate for a sustainable business model. The firm believes tariffs have to rise to Rs 200 initially, and then to Rs 300 for sustaining operations. 

While there are apprehensions on the price hike front, analysts believe tariff hikes are inevitable despite Vi’s fundraising plans, as it will have to pay for higher capex requirements, pare debt, and maintain market share. 

Further, analysts at Axis Capital believe the seasonality factor may not play out in the September quarter, given the easing of Covid-19 restrictions, higher number of digital recharges, and a shift towards 4G and long-term plans. 

While a delayed tariff hike should mean lower revenues and target prices for Bharti Airtel, analysts believe the same has already been factored in.