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Synopsis: Bharti Airtel, with its strategic premium positioning and rising average revenue per user (ARPU), is well-positioned to capitalize on India’s telecom market dynamics, according to multiple analysts. The company’s strong financial performance in Q2 2024 and potential to generate substantial free cash flow make it a prime candidate to benefit from upcoming tariff hikes. Notable brokerages, including Motilal Oswal Financial Services (MOFSL), Nomura, and Nuvama, have highlighted Airtel's advantage in managing premium user segments and its focused expansion in digital and enterprise services, driving a transformation from a traditional telecom provider to a diversified “techco” over time.
Bharti Airtel Ltd’s latest Q2 2024 results underscore its position as a leading telecom operator poised to benefit from rising ARPU and a robust customer base, particularly in the high-value segment. Analysts have observed that Bharti Airtel’s premium positioning and superior execution on its "premiumisation" strategy have set it apart, making it likely to enjoy significant free cash flow growth and improved financial flexibility. MOFSL noted that Airtel's effective management of capital expenditure will support its long-term profitability and enhance shareholder value.
Nomura India has also reiterated its "Buy" rating for Bharti Airtel, raising its price target to Rs1,850. Nomura projects a FY25 ARPU of Rs238, marking a 16% year-on-year growth, and anticipates continued improvements through FY27 with ARPU estimates reaching Rs304. This sustained ARPU growth aligns with Airtel’s strategy to attract and retain high-quality subscribers, positioning it to leverage the expanding 5G landscape and transition towards tech-based services.
MOFSL estimates that a Rs10 increase in ARPU would enhance Bharti Airtel's FY26 EBITDA by approximately 4%, further strengthening the financial foundation as the company reduces capital expenditure intensity. Nuvama, highlighting Airtel’s ability to generate over Rs10,000 crore in free cash flow each quarter, emphasized that the peak period of 5G capital spending is now behind, improving the company’s overall financial stability and making it well-positioned for the anticipated tariff hikes expected post-2024.
For valuation, both MOFSL and Nuvama apply a sum-of-the-parts (SotP) method, factoring in projected growth across various business lines. This approach underlines Airtel's potential value with a focus on its core business segments and investments, with Nuvama rating Airtel's Indian mobile business at a multiple of 13 times EV/EBITDA for FY27. This valuation model, combined with Airtel’s progressive cash flow and reduced capital spending, makes Bharti Airtel a notable investment choice in the Indian telecom sector.
Disclaimer: This analysis is for informational purposes only and should not be taken as financial advice. Always consult a professional financial advisor before making investment decisions.
