Reliance Jio Announces Tariff Hike From July 3

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00:00Nithin Soni, Senior Director at Fitch Ratings and Balaji Subramaniam, Vice President of

00:04Research at IFL Securities joins in.

00:06Nithin, I'll start with you on this one.

00:08What does this hike imply?

00:10Since it's not across the plans, but it's a strong move nevertheless.

00:15You've had Bharti come in this morning with a 10 to 21 percent hike.

00:18Jio, of course, went and hiked 12 to 25 percent.

00:22This is significant because one, while the market was expecting a tariff hike, the quantum

00:27is much higher than expected.

00:28Yeah, thanks for having me on the show.

00:32So we rate Reliance at BBB flat stable on the foreign currency IDR and local currency

00:38IDN is BBB plus stable.

00:40I think this is definitely credit positive because we have been expecting that a deadline

00:46tariff hike will be coming in the market.

00:50And now the top to 10th course, Reliance, Jio and Bharti have deployed significant sum

00:55of money on the 5G expansion.

00:58So it was it was imminent that such a headline tariff hike will be announced anytime soon.

01:03So this is a welcome step.

01:04And we do expect their average revenue per user to increase by 15 to 20 percent on a

01:11year on year basis in the next 12 months with this tariff hike and also along with the fact

01:17that a lot of consumers are moving to higher data plans, they are consuming more data.

01:24India is anyway one of the one of the highest market where the data consumption is very

01:29high compared to other regions.

01:32And as I think one of your colleagues was telling, I think Vodafone India needs the

01:37tariff hikes the most in this situation because they have been struggling to pay their spectrum

01:44dues and the payments to the tower companies.

01:47So it will I think it will be a matter of time that they will announce similar tariff

01:51hikes.

01:53I would also say that we will expect more tariff raises, I think, in the future, because

02:03Bharti's management have been quite vocal, they have been publicly saying that they want

02:07to see the average revenue per user at Rs. 300 and they need higher headline tariff definitely

02:14to monetize the large 5G investors.

02:18Okay, well, Balaji Subramaniam is also with us and Balaji, just take a moment and tell

02:27us that is this the first of the many that you believe because of hikes that could have

02:34come in because just the fact that spectrum auction was muted, there is Jio which is leading

02:38this price hike, which means that maybe competitive intensity is now being given less importance

02:45versus monetization.

02:47Does this mean that it will be first of the many hikes over the next 24 months?

02:52And does that therefore auger well for the earnings and balance sheets of the telcos?

02:56Good morning, thanks for having me on the show.

03:00I would say that, you know, to call it first of many hikes over a 24 month period would

03:07be probably, you know, stretching it a little too far.

03:11But, you know, frankly, what I think is that one can probably have a similar sized tariff

03:17increase, maybe 12 to 18 months down the line.

03:21And you know, if that also materializes, then Bhartiya Airtel should be able to achieve

03:28the 300 rupee medium term ARPU target that they have been talking for many years now.

03:33Of course, as far as the need for the tariff hikes was concerned, of course, we haven't

03:40seen any outright across the board tariff increases since December 2021.

03:47And so, in a way, it was highly overdue, considering the fact that the telcos spent big on 5G spectrum

03:56in the 2022 auctions.

03:57And, you know, let us not forget that at some point Reliance will also have to provide an

04:04exit for the investors in Jio platforms through an IPO.

04:09So all of those considerations were there in mind.

04:13And if you look at the return ratio, even the profitable telcos like Jio and Bhartiya

04:19Airtel made today at current tariffs, they are in high single digits.

04:25So, you know, I would expect, you know, it was just a matter of time before this tariff

04:29hike happened.

04:30And, you know, maybe we will have one more significant tariff hike in the next 12 to

04:3618 months.

04:37That's some time away.

04:38Nitin, would your assessment be, I mean, I don't know if you have an assessment on when

04:42can the price hikes happen, but with an assumption that this one has happened and there could

04:46be another one anywhere between the next month to the next 24 months.

04:50What does it do per se to have you view the strength of the franchise of any of these?

04:56Because, I mean, we know Vodafone is kind of coming out of the blinkers, if you will,

05:01but with some serious fund infusion, talk of some debt being raised as well and banks

05:06being open to doing that too.

05:08How do you view this whole piece then?

05:10No, I think, see, we have come a long way in terms of the industry consolidation.

05:15We used to have over 10 operators.

05:17Now we have two plus one and the two being are very strong.

05:22They have a very strong balance sheet.

05:24Vodafone idea is struggling.

05:27So they have all the motives to and they intend to drive prices higher.

05:32They have invested a substantial sum of money in the 4G spectrum and the 5G spectrum in

05:372022.

05:38So they need to monetize all these large investments and generate a decent return on investment

05:45for their investors.

05:47So it's tough to say when the next hike will come, but I think our view is that it will

05:52surely come, whether it's coming in 12 months, 18 months or 24 months.

05:57If you look at the behavior of these telcos, the previous tariff hikes were mostly led

06:02by either Bharti or Vodafone idea, but this, I think this is a pleasant surprise.

06:07I would say that this time it is led by Reliance Jio, which, you know, since its inception

06:13has been playing the role of expanding the market with higher data consumption, keeping

06:19the prices lower.

06:20But I think now clearly with this action, you can say that Reliance Jio, they also want

06:26to monetize their large investments and expand their margins and expand their revenue growth.

06:32So I think it's a very welcome move and probably the next one could happen in the next 12 to

06:4024 months.

06:41Right.

06:42Balaji, what do you feel, I mean, do you think this is reading the signs here?

06:47Because like Nitin also indicated, up until now, it was either Bharti or Vodafone taking

06:51a lead in terms of a price hike.

06:54Reliance is so focused on increasing market share, it was a third player for whatever

06:57it's worth.

06:58From this action, it very much seems that the leadership now is with Jio.

07:03Would you agree?

07:04And keeping that in mind, how would you approach the stocks of these telcos?

07:10See, I would think that, you know, typically what happens in most markets is that the leader

07:15is the one who takes tariff hikes.

07:17In India, you know, since Reliance Jio was in market share gain mode for the initial

07:27five-year period, Bharti or Vodafone idea ended up playing the role of the leader when

07:34it comes to initiating tariff hikes.

07:36But now Reliance Jio has become a mature market leader and they are still seeing market share

07:44gains, but they are more or less in a mature phase.

07:48So, I think, you know, it is just right that the market share leader goes ahead and takes

07:55tariff hikes.

07:56So, to that extent, you know, it's a positive that Reliance Jio is kind of leading the way.

08:03As far as the stock price performance is concerned, I think the stocks have fallen a little bit

08:09today because of the profit booking that must have happened because at the end of the day,

08:17the kind of tariff hikes which we have seen were largely in line with what the street

08:21was expecting.

08:22So, it was not like, you know, there was a positive surprise here.

08:24This has been anticipated for quite some time and the increase is almost exactly in line

08:31with what most investors had in mind.

08:34So, going ahead, I think, you know, at least the near-term gains of the depot stocks especially

08:44could be capped because the run-up has been quite healthy in the last 3-4 months.

08:51In this space, I would think Indus Towers could still offer some value because, one,

08:57it will gain from Vodafone ideas, fundraise and 4G rollout.

09:01And two, once Bharti is done with its rural 4G rollout, Indus' FCR will improve, which

09:08in turn will result in, you know, dividend payouts getting received.

09:12So, you know, at this point, I would probably, you know, play this, I would see Indus as

09:16the best proxy to play the improving industry structure from a stock perspective.

09:21Just before we wrap up, Balaji, a word on Indus because the indirect beneficiary out

09:26there, what's the view?

09:28So, that's what I said.

09:30Sorry if I missed it, yeah.

09:32Yeah, so, it will benefit from, you know, Vodafone ideas, 4G rollouts and two, as the

09:39FCR improves, you know, the dividend also would be reinstated because in the last couple

09:44of years, Indus had suspended paying dividends because of Vodafone ideas troubles and also

09:49because of the elevated capex that they were doing because of Bharti's 4G rural rollout.

09:56Now, you know, with both these things behind, the dividend payouts should resume maybe in

10:01the next 6-9 months.

10:03So, you know, we have a 6-7% dividend yield as well as a 7-8% stock price appreciation

10:10potential.

10:12Okay, dividend yield appreciation, Indus Towers features in that list and a dip today due

10:17to profit booking, but otherwise, Balaji seems constructive.

10:19Balaji, thanks for joining in and giving us that perspective.

10:22Really appreciate your time.

10:24Nitin, we are out of time completely.

10:26We have HM Bangur of Shree Cement waiting, but just one quick question, Nitin, to you.

10:29What is it that you are watching out for next when you analyze what telcos are doing?

10:3360 seconds, Nitin, please.

10:36I think the next leg of growth is definitely going to come from the 5G adoption.

10:41So, that is the metrics we need to watch out for, that how many consumers are moving from

10:464G to 5G and that is the next leg of, you know, the driving factor for the data consumption.

10:52We are already sitting at over 20 GB per month per subscriber data consumption, but that

10:57can lead to much higher if the 5G adoption is this much faster.

11:01And that will be, you know, also driven by the ecosystem, the number of apps we have

11:05and the number of, you know, the data streaming, all the worlds of Netflix and video streaming.

11:12I think more and more that will drive the higher data consumption.

11:16Right.

11:18Thank you, gentlemen.

11:20Great talking to both of you and giving us, and thanks for giving us that perspective,

11:22that much-needed perspective, actually, what this tariff hike really means for the sector,

11:25ARPUs and the balance sheet of the individual companies.

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