Telecom tariffs may rise 12% in 4-6 months; Centrum lists top picks in the sector

Telecom tariffs could see a broad-based increase of around 12% over the next four to six months, potentially around November-December, according to Piyush Pandey, Senior Vice President at Centrum India. He said tariff hikes typically happen every two to two-and-a-half years, with the last increase taking place in July 2024.

“We are expecting tariff hike of close to around, say, 12% over the next 4 to 6 months,” Pandey said.

A tariff increase could provide earnings boost to telecom operators, said Pandey, who prefers Bharti Airtel and Indus Towers within the sector. He sees limited options among listed telecom stocks, but considers Vodafone Idea expensive at its current valuation.

Vodafone Idea’s funding plans remain an important development for the sector. Pandey said the company’s operating performance has improved, with customer additions, higher average revenue per user (ARPU), growth in 4G and postpaid users, and a stable operating margin profile.

The key issue, however, has been funding for network expansion. Vodafone Idea plans to spend around ₹45,000 crore over the next three years, while its current cash earnings before interest, taxes, depreciation and amortisation (EBITDA) is around ₹10,000 crore a year. Pandey estimates the company will need around ₹35,000-40,000 crore of external funding to support its plans.

If the reported bank funding goes through, Pandey expects it to help Vodafone Idea expand its 4G and 5G network, particularly across its 17 focus circles. Vodafone Idea’s 4G coverage is currently around 86%, compared with more than 90% for Bharti Airtel and Jio.

“The current aim is to raise funds from the banks,” Pandey said, adding that the company is not currently looking to raise fresh equity after funding from the Aditya Birla promoter group and Vodafone Plc.

Pandey sees Indus Towers as a better way to play Vodafone Idea’s revival. Higher network spending by Vodafone Idea could drive more tower additions and colocations for Indus Towers, while Vodafone Idea’s receivables from the tower company have also come down.

Indus Towers is trading at around 6 times FY28 EV/EBITDA, which Pandey considers reasonable. The company has also resumed dividend payments and is expanding into Africa.

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“Indus can be a good way to play, and Vodafone Idea at the current valuation looks expensive,” Pandey said. He puts Vodafone Idea’s valuation at around 13 times FY28 EV/EBITDA.

Disclosure: Reliance Industries Ltd, which owns Jio, is the sole beneficiary of Independent Media Trust that controls Network18, the parent company of CNBCTV18.com.

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