As per the telecom sector report from Motilal Oswal Financial Services, discussion with industry experts show that a price hike could be around the corner and may be anticipated soon as economic activity has restarted post the COVID-led lockdown and demand for data consumption is growing unabated.
The timing of a price hike is in line with our expectations of a tariff hike by FY21-end or early FY22. A 20% price hike should increase BHARTI/RJio/IDEA's Average Revenue Per User (ARPU) to INR178/INR167/INR140 in FY22E.
Motilal Oswal Financial Services has not factored in a material price hike in the model at present. Without any tariff hike, Motilal Oswal Financial Services expects BHARTI/RJio to generate post interest FCF of INR64b/-INR64b, including a one-time spectrum renewal cost of INR130b/INR280b.
The brokerage firm stated, "Although this should provide IDEA with additional cash flow, it would still not be enough to fulfill its obligations. Our workings suggest that IDEA needs 74% ARPU hike to achieve EBITDA (pre IND AS 116) of INR300b to sufficiently furnish its complete cash obligations sustainably in FY23, including deferred spectrum payments.
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