Airtel shares rise on Reliance Jio tariffs hike; investors see price war easing ahead
Share prices of Indian telcos rose sharply on Monday as the increase in Reliance Jio mobile data tariffs announced last week raised hopes of an easing in the price war that has eroded profits in the telecom sector. Share prices of top-ranked Bharti Airtel jumped to a more than eight-year high and Reliance hit a record on the first day of trading since Jio's announcement last week of new high-end data tariffs that effectively raise prices by as much as 20 per cent.
Billionaire Mukesh Ambani-led Relaince Jio has shaken up the telecom market with its free voice calls and dirtcheap prices for 4G data, forcing established players including Bharti Airtel, Vodafone and Idea Cellular to match the cut-throat prices to protect their market share. Bharti Airtel saw its profit plummeting 75 per cent in the April-June quarter while Idea Cellular reported a third consecutive quarterly loss. Analysts said Jio's prices remain low, although they welcomed the hikes as a good initial signal of more pricing discipline.
The Reliance Industries conglomerate had said on Oct. 13 that Jio would turn profitable "shortly" after the telecom unit posted a loss of Rs 271 crore during the quarter. Reliance shares jumped as much as 3.8 percent on Monday to hit a fresh all-time high, before closing 3.3 percent higher. Bharti Airtel led gains on the broader NSE index, climbing as much as 5.8 percent to hit its highest level since May 2009. Idea Cellular Ltd surged as much as 8.8 percent to touch its highest since July 25, while Reliance Communications Ltd rose as much as 9.5 percent. Jio's tariff plans included a mix of price hikes or reduced benefits, such as charging 15 percent more for an 84-day plan that offers users up to 1 gigabyte of 4G data per day, and reducing the validity for its 399 rupee pack to 70 days from 84 days.
Reliance Industries' market cap soared to Rs 5,94,078.91 which is just Rs 5,921 crore short of Rs 6 lakh crore mark for the first time ever. The market cap of Bharti Airtel touched Rs 2 lakh crore on Monday. The promoters too, recorded a sharp increase in their wealth following the surge in telecom stocks.
According to Forbes, Reliance Industries Chairman and Man-aging Director Mukesh Ambani recorded a nearly $1.1 billion increase in net worth on Monday. while Bharti Airtel chairman Sunil Mittal tunred richer by $433 million. The recent increase in Reliance Jio tariffs will increase its average revenue per user (ARPU) by up to 20 per cent and is a positive for the telecom sector which is seeing rapid consolidation, says a Philip Capital report.
Reliance Jio should be able to maintain the revenue traction in the forthcoming quarters and reduction in interconnection usage charges on the other hand will help the company in keeping costs under control, it said. "We find that Jio is increasingly growing in confidence about its network and product quality and the pace of ARPU increases should sustain as the value offered by Jio still far exceeds the incumbents plans by a significant margin," the report added. However, a Credit Suisse report said that the new tariffs of Jio are still 65 per cent lower than an average smartphone customer was paying before its launch which would continue to put pressure on the ARPU of the older telecom players.
