Airtel, Jio's Growth Drivers Intact But No Spectrum Investment Soon: HSBC

The financial strength of India's telecom majors, Bharti Airtel Ltd. and Jio, is likely to get a boost with HSBC forecasting a surge in free cash flow for both, driven by a combination of the rising average mobile revenue per user and increased data consumption. This is fuelled by strategic tariff hikes and rapid expansion of the home broadband market.

With the bulk of 5G rollout completed, both companies are set to reap the rewards of their substantial prior investments. Rising revenues and reduced capital outlays are expected to lead to significant deleveraging, according to the brokerage.

The brokerage expects an uptick in Airtel's revenue, owing to the tariff hike, increasing data usage and rise in post paid subscriptions. Expansion in home broadband has benefited Jio the most, followed by Airtel.

HSBC expects Airtel and Jio's net debt to fall by financial year 2027, as free cash flow improves. The firm also expects their capex intensity to moderate from this year as they are past peak 5G coverage capex.

With rising 5G use, operators could re-farm spectrum for 5G from 4G. This would increase network capacity and network capex intensity should moderate, according to the brokerage.

There is a lower spectrum investment that is expected by the brokerage for Airtel and Jio in the next four to five years. This is based on the spectrum investments that have been made in the past. Further, their spectrum portfolio is also competitive compared to other large Asian operators.

This shows that both the firms have headroom for more network capacity, given the current spectrum bank.

The brokerage raised its target price on Bharti Airtel from Rs 1,940 to 1,985, while maintaining 'buy' rating on the counter. The stock has the second highest upside potential of 26.4% in the trio that includes Jio and Vodafone.

Reliance Industries' Jio has the highest upside potential among the three. The target price on the stock was marginally raised from Rs 1,580 to Rs 1,590. HSBC maintained its 'buy' rating on the counter.

The brokerage retained a 'reduce' rating on Vodafone Idea, with a reduced target price of Rs 6.50. There is a 13.9% downside potential for the stock, according to the brokerage.