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MOSL: VODAFONE IDEA (Neutral)-VIL hikes Prepaid tariffs by 20%, all eyes now on RJio

VODAFONE IDEA: VIL hikes Prepaid tariffs by 20%, all eyes now on RJio

(IDEA IN, Mkt Cap USD4.1b, CMP INR10.2, TP INR9.3, 8% Downside, Neutral)

 

• Following Bharti and after months of expectation, VIL finally announced a tariff hike to the tune of 20% across its price plans, effective from 25th Nov'21. It is now important for RJio to follow suit to ensure sustainability of the tariff hikes.
• VIL's ARPU, which stands at a mere INR109 (40% below Bharti), given the higher proportion of customers on lower base plans, could see a big push, provided it doesn't see a huge market share loss. This hike, catering to ~70% of its revenue pool, can potentially offer an incremental EBITDA of INR38b (2QFY22 annualized), i.e. a 68% jump v/s 13% for Bharti.
• While there is a limited risk of downtrading, given the way the price plans are designed, there is a risk of steep market share loss similar to the last price hike (Dec'19), which saw a mere 20% flow through of the estimated EBITDA upside at INR15b.
• VIL's cash flow crunch will get addressed provided the current subscriber churn is arrested, with INR80-100b of estimated annual capex and interest expense. It needs immediate funding for INR64b of NCD repayments due between Dec'21 and Mar'22.

 VIL raises tariffs by 20%

• Following Bharti and in line with our expectation, VIL raises tariffs by 20%, effective from 25th Nov'21. Its price plans are now similar to Bharti. VIL's ARPU is merely INR109, 40% below Bharti, due to high proportion of customers (two-third) being on low base plans of INR79. This too has now increased to INR99, compelling consumers to recharge to higher plans, offering a huge push to ARPU. However, this may result in further consolidation of dual SIM cards, increasing churn.