Bharti Airtel, Vodafone Idea Shares See Sharp Gains as Brokerages Cheer Tariff Hike Move

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At 10:20 am, shares of Bharti Airtel were trading at Rs 433.70, up 6%, after hitting the day’s high of Rs 435. The stock has risen over 20% in the past three sessions.

Shares of India’s leading telecom operators Bharti Airtel Ltd and Vodafone Idea Ltd shot up as much as 6.2% and 21%, respectively, on Tuesday after the two companies announced that they will hike voice and data tariffs from December in order to maintain viability of their businesses.

At 10:20 am, shares of Bharti Airtel were trading at Rs 433.70, up 6%, after hitting the day’s high of Rs 435. The stock has risen over 20% in the past three sessions. Meanwhile, shares of Vodafone Idea were trading at Rs 5.35, up 20.2%, after hitting an intra-day high of Rs 5.40. The stock has risen by a massive 81% in last three sessions.

On Monday, Vodafone Idea and Bharti Airtel said that despite the growing demand for services, prices for mobile data are very cheap in India and have been eroding the viability of the sector. The telecom firms had last week reported their highest ever quarterly loss in the three months ended September. Vodafone Idea reported a consolidated net loss of Rs 50,921 crore for Q2 FY20, while Bharti Airtel posted a loss of Rs 28,450 crore. The losses mainly stemmed from provisions set aside by the two firms for unpaid government dues after the Supreme Court ruled in favour of the government in the AGR (adjusted gross revenue) case.

After the tariff hike announcement, Jefferies upgraded Bharti Airtel to ‘hold’ from ‘underperform’ and raised its target price to Rs 407 per share. Though it downgraded Bharti Infratel Ltd to ‘underperform’ from ‘hold’ and slashed its target price to Rs 180 per share. Notably, Bharti Infratel shares still jumped as much as 7% in trade on Tuesday.

The brokerage firm said that despite the proposed tariff hike, Vodafone Idea is likely to lose a majority of high average revenue per user (ARPU) subscribers to Bharti Airtel, while Airtel should gain 500 basis points market share. It factors in a 21% price hike in FY21 and expects the government to provide a moratorium on spectrum AGR dues for two years.

Morgan Stanley also raised Bharti Airtel’s stock target price to Rs 410 from Rs 360 earlier, while maintaining an ‘equal-weight’ rating. “Most important measures could be a waiver of interest/penalties/interest on penalties on AGR dues. However, possible floor pricing may lead to sustainable tariff increases going forward,” the brokerage firm said.