The tiff between telecom companies is intensifying with every single day, especially after the biggest player Reliance Jio launched a new set of tariff plans. Investors feel this could add pressure on Bharti Airtel and Vodafone Idea given that users would now port their numbers to Jio but that's not the worst-case scenario, said Goldman Sachs.

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The brokerage in its report dated September 24, remained bullish on Bharti Airtel and Reliance Industries with a 12-month target price of Rs 625 and Rs 2,325 per share, respectively. It continued to maintain its target price on Vodafone Idea to Rs 3.30 citing government intervention, asset divestments and current tariff environment as core reasons for the downside.

The report explained that the pricing is not a big factor because Reliance Jio has not cut the price of its existing Rs 199 plan instead introduced new plans (at 2x the tariffs of its existing plan), which is not the start of a "tariff war".

Will there be a tariff hike?

According to the brokerage, there will be a hike before the end of CY20. "Almost the entire revenue base of Jio is prepaid, with c.80 percent of that coming from smartphones (c.50 percent for Airtel and Vodafone). Thus, any tariff cut in this segment , or delay in tariff increase , would impact Jio's revenue/EBITDA the most. Jio not needing to raise tariffs has been a consistent investor pushback," noted Goldman Sachs.

What happens if there is no tariff hike?

In case of no tariff hikes, expect accelerated market erosion for Vodafone Idea, said the brokerage report. "Current EBITDA run rate (Rs 60 billion annual) is 75-80 percent lower than what the company requires to pay all its obligations starting in CY22," it added. As a result, Rs 188 implied value per share will be added to Bharti Airtel.

Thus, tariffs moving up or market re-allocation is highly possible in the near-term.

Buy Bharti Airtel

"Our 12-month DCF-based target price remains Rs 625," said the brokerage report.

It feels that the telco can sustain double-digit EBITDA growth for the foreseeable future along with upside risks from higher-than-expected tariff hike and market share gains from Vodafone Idea.

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First Published:Sept 28, 2020 2:53 PM IST