According to a recent report by Motilal Oswal Financial Services, a 20 per cent tariff hike could drive up Vodafone Idea’s (Vi) average revenue per user (ARPU) to Rs 140 in FY22E. This can be expected as the economy has started opening up post-Covid-led lockdown along with unabated demand growth for data.
Further, the report added that the price hike could provide Vi with additional cash flow. However, the telco requires an ARPU hike of 74 per cent to achieve an earnings before interest, taxes, depreciation, and amortisation (EBITDA) of Rs 300 billion to address its cash obligation sustainably in FY23, including the deferred spectrum payments. Vi also needs to arrest its subscriber churn to realise the benefit of the price hike, said the report.
Motilal Oswal expects that in the absence of any tariff hike, Bharti Airtel and Reliance Jio may generate a post-interest-free cash flow (FCF) of Rs 64 billion each, including respective spectrum renewal costs of Rs 130 billion and Rs 280 billion. Further, Motilal Oswal continues to remain bullish on Bharti Airtel and Reliance Jio with a target price of Rs 650 and Rs 900, respectively for a 66 per cent stake. To this end, it has also assigned a higher multiple of 11x/18x to Bharti Airtel/Reliance Jio for capturing expected gains from any potential tariff hike, higher market share gains.