The domestic brokerage house, Ambit Capital has reiterated its assumption that telecom operators in India will raise tariffs by 15% in December. The brokerage said it does not see any risk to this thesis and expects further tariff hikes of 12% every two years in the next decade.
“Our positive view of the sector rests on our expectation of pricing discipline after Jio’s listing and the government’s desire for a three-private-player industry structure. Bharti Airtel is our top sector pick,” the brokerage said.
Ambit Capital has a ‘Buy’ rating on Bharti Airtel, Indus Towers, Vodafone Idea, and Bharti Hexacom.
Ambit Capital said the launch of ‘Jio Prime’ membership, which locks plan prices until September 5, 2027, also reflects the company’s intent to hike prices in the coming months.
Other signals include Airtel deciding to eliminate its 1.5 GB per day entry-level plan in August and also increasing the prices of its postpaid plans. Ambit expects the elimination of the entry plan to lift the average revenue per user (ARPU) by 4.4%.
Higher capital expenditure requirements for the industry have led to par to sub-par return ratios for Airtel and Jio to their cost of capital. For Airtel, the return on capital employed (RoCE), pre-tax, was 11% in FY26 while it was 8% for Reliance Jio. This shows the industry does not have “excessive returns” yet.
The brokerage expects Vodafone Idea to generate Rs 17,100 crore of cash earnings before interest, tax, depreciation, and amortisation (EBITDA) in FY28, after the expected 15% tariff hike in December. “The company’s statutory dues are Rs216bn (Rs 21,600 crore) during the year. Thus, VIL’s survival requires consistent tariff hikes, although hike intensity need not be as high as in past years,” it added.
The brokerage’s “faith” in telecom companies ability to carry out periodic tariff repairs is supported by Vodafone’s survival imperative, returns for Jio’s investors, and the poor economics in the industry currently.
Vodafone has to raise ARPU to over Rs 300 from Rs 177 currently, Ambit said. It believes Airtel and Jio will be able to clock a 16% and 15% revenue increase on a compounded annual growth rate (CAGR) basis over FY26 to FY29, respectively.
“Operating leverage will let them maintain conservative balance sheets and pay dividends, reducing capital allocation risks. This will allow telcos to attract ‘consumer proxy’ institutional flows. VI and Indus are indexed to government action to preserve the sector’s three-private-player nature.”
Execution variables like power and water linkages, rather than utilisation, are the key risks for towercos, the brokerage said.
It added that satellite services (Satcom) could pose an emergent risk for incremental monetisation by telecom operators, but regulatory safeguards and sovereignty concerns favour these companies.