Morgan Stanley, Citi, Jefferies: Brokerages decode RJio, Airtel tariff hike

Bharti Airtel, Reliance Jio telecom tariff hike: Bharti Artel and Reliance Jio (R-Jio) announced a hike in tariffs across telecom plans with effect from July 3 and July 1, respectively. While R-Jio announced a hike ranging between 12 - 25 per cent across plans in post market hours on Thursday, June 27, Sunil Mittal-controlled Bharti Airtel followed up with a hike in its key telecom plans on Friday, June 28.

The development triggered an up move in the respective stocks, with RIL hitting an intraday high of Rs 3,129 on the BSE. 

Bharti Airtel, on the other hand, will also revise its mobile tariffs with effect from July 3, 2024. Bharti Airtel stock rallied 5 per cent on Friday, June 28 to hit a new high of Rs 1,539.10 on the BSE.

 

In the last two rounds of tariff hikes, Vodafone Idea (Vi) in December 2019 and Bharti (Dec 2021) took the lead, while R-Jio was the last one to raise tariffs. Unlike Bharti Airtel and Vi, who have been very vocal on the need for industry tariff repair, R-Jio, wrote analysts at Kotak Institutional Equities, has not been upfront about the need for industry-wide tariff hikes. 

"The need for R-Jio to raise tariffs was equally (if not more) pressing, given: 1) its larger 5G investments; and 2) further moderation in RoCEs and FCF. While the quantum and timing of tariff hikes is in line with our estimates, R-Jio taking the lead on raising tariffs is a sentimental positive for the telecom industry," they said in a recent note.

Analysts at Morgan Stanley believe the tariff hike announcement by Bharti Airtel could give an immediate boost to the stock, as seen in 2019 and 2021. That said, this tariff hike won’t necessarily lead to any material upgrade to their/consensus EBITDA estimates. 

Bharti Airtel stock continued to outperform the Sensex in 2019 after the announcement of a tariff hike over the next one, three, and six months. After the 2021 tariff hike, it had underperformed over the next one, three, and six months – the hike was largely anticipated and the stock had done well in the previous three months. 

"This time, Bharti Airtel stock is up 13 percentage points relative to the Sensex in the last three months – a blended tariff hike was largely anticipated," analysts at Morgan Stanley said.

One-year forward EV/EBITDA multiple for Bharti Airtel's Indian business was at 9.8x as of the 2019 tariff hike announcement and re-rated almost 15 per cent, to 11.3x, according to Morgan Stanley, over the following six months. 

"As of the 2021 hike, the multiple was 10.7x but struggled to move up in the following six months – rather, it de-rated amid underperformance. Currently, on our estimates, one-year forward EV/EBITDA (Indian business) is Rs 13.2x – just short of its all-time peak of 13.7x," the Morgan Stanley note said.

For Bharti Airtel analysts at Morgan Stanley see a new floor of Rs 1,000-1,050 (assuming the 15-year average multiple on base case earnings) following the current tariff hike announcement by Reliance Jio.

Here is how leading brokerages have interpreted the RJio telecom tariff hike and Bharti Airtel telecom tariff hike.

Jefferies on RIL

Buy call; Target price raised to Rs 3,580

Jio has raised tariffs by 13-25 per cent; 

Cut Jio's FY25-27 estimates by up to 3 per cent

Expect Jio to deliver 18/26 per cent revenue/PAT CAGR over FY24-27

Tweak RIL's fy25/26 Ebitda by 0-1 per cent to incorporate Jio's numbers

Morgan Stanley on RIL

Overweight Call, Target price: Rs 3,046

Tariff increases in-line with our base case expectation

Monetisation of investments remains in play

Next catalyst to watch will be startup of new energy cash flow streams by end-2024

Do not assume any further tariff hikes till FY27

But another around 20 per cent tariff hike next year can raise earnings by 10-15 per cent

CITI on Telecom

Magnitude of hike by Reliance Jio is impressive;

Jio taking lead signals a shift in thinking from market leader & suggests peak of competitive intensity is behind us;

Jio taken a step towards indirectly monetising 5G

Jefferies on Telecom

Jio's willingness to raise tariffs bodes well for Bharti/Jio's revenue/margin outlook;

Maintain Buy on Bharti; target price Rs 1720