The Bharti Airtel stock was up 11 per cent in trade on Tuesday and in the process hit record highs after it surprised the Street with a better-than-expected performance in the March quarter.

Comments from Bharti Airtel’s management have raised expectations for an increase in tariff rates in the near term. Gopal Vittal, MD and CEO, India and South Asia, Bharti Airtel, in a post-results call indicated tariffs are unsustainably low and highlighted that the average revenue per user (ARPU) in the March quarter for Bharti Airtel at Rs 154 is inadequate. He expected the ARPU to rise to Rs 200 and above.

Analysts believe a further increase in tariffs may be effected given the investments towards capital expenditure (capex) and leverage concerns for both Bharti Airtel and Reliance Jio. Bharti’s capex in the March quarter, for example, more than doubled on a sequential basis to over Rs 11,000 crore and accounted for 46 per cent of the total capex in FY20. The Net debt increased in the quarter and stood at Rs 1.18 trillion, with net debt to operating profit at around 3 times.

Bharti’s capex at Rs 25,358 crore for FY20 was about 12 per cent lower year-on-year (YoY) and the company has guided for a moderation of capex. Given this, analysts don’t expect substantial cuts in capex. "The company may keep capex at elevated levels, given the need to gain market share from competitors, such as Vodafone Idea. Market share gains and tariff hikes are key triggers for the stock, going ahead," says an analyst at a domestic brokerage.

The immediate trigger for the stock, however, was the 14 per cent jump in ARPU on a sequential basis. The metric at Rs 154, led by the tariff hike in December, was the highest in 12 quarters. This helped the company report a 10 per cent uptick in its India business and an 8 per cent increase at the consolidated level. India accounts for three-fourths of Bharti's consolidated revenues.

With wireless subscribers almost at the same level as in Q3FY20, revenue growth for the India mobile business on a sequential basis was driven entirely by the increase in ARPU. Most brokerages had expected 7-10 per cent sequential growth in ARPU. Bharti's wireless segment operational performance was better than Reliance Jio, according to G V Giri and Balaji Subramanian of IIFL Securities.

"Adjusted for interconnect usage charge (IUC), we estimate Bharti’s service revenue growth to be upwards of 16 per cent, as compared to the estimates for Reliance Jio’s service revenue growth of 4.7 per cent." The outperformance came in despite a fall in IUC revenues, as Jio charges on off-net calls after given talktime; 4G data plans of Bharti offer unlimited voice calls. Jio had reported a 1.7 per cent quarter-on-quarter (QoQ) increase in the ARPU in the March quarter, to Rs 130.6. While analysts had expected Bharti to post better ARPU growth than Jio given the former has a lower proportion of subscribers on longer duration plans, the extent of the ARPU increase came as a surprise, says IIFL Securities.

At 283 million, Bharti's mobile subscriber base in India remained flat. But there had been a robust 10 per cent rise in its 4G subscriber base to 148 million. The share of 4G customers crossed the half-way mark for the first time and given the price hike, this growth came in the higher tariff bracket.

Bharti's data traffic, too, witnessed appreciable growth of 16 per cent sequentially, as compared to 6 per cent growth for Jio.

While Bharti's India wireless operating profit growth was up 27 per cent sequentially, it was below estimates, given a 7.7 per cent increase network operating costs. Besides, sales and general and administration costs, as well as employee cost (up 7-10 per cent), dented the gains at the operating level.

Despite the uptick in revenues and growth in operating profit, a slew of one-offs, especiallyRs 5,600 crore towards regulatory costs (spectrum charge), led to a fourth consecutive quarter of loss for the company. Exceptional costs at Rs 7,512 crore dented the bottom line, which came in at Rs 5,237 crore.