Brokerages Positive On Bharti Airtel On Rising ARPU, Capex Moderation, Bajaj Finance Tie-Up
HSBC sees 26% upside potential in Airtel's stock, as it has revised its target price after factoring in the rising ARPU and decline in capex intensity.
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Brokerages are positive on Bharti Airtel Ltd. over a range of factors, including its tie-up with Bajaj Finance Ltd., the rising average revenue per user, and a likely plunge in the industry-wide growth of telecom towers, which can slow down competitive intensity and improve the pricing power of telcos.
In the period from April to January of fiscal year 2024-25, the rollout of telecom towers, or base transceiver stations, has "slowed sharply" and may moderate further in fiscal 2025-26, ICICI Securities said in a note issued on Wednesday.
This suggests that telcos are slowing network rollout, which points towards a moderation in capex and competitive intensity. "Competitive intensity easing offers better pricing power for telcos," the brokerage said, adding that as a result, it maintains its "buy" rating for Airtel and has a "reduce" rating for Indus Towers Ltd.
ICICI Securities' target price for the country's second largest telco is Rs 1,925 per share, which suggests a 19% potential upside.
Rising ARPU
Airtel's rising ARPU is one of the key reasons behind the company remaining on the buy list of HSBC, which has increased its target price for the stock to Rs 1,985 from Rs 1,940. The revised target implies a potential upside of 26.4%.
In the quarter ended December 2024, Airtel's ARPU rose to Rs 245 from Rs 233 in the preceding quarter.
In a recent note, HSBC stated that Airtel's ARPU would rise due to a tariff hike in fiscal 2026-27, subscriber migration to higher bucket data plans, and gains in high-value post-paid subscriptions. The brokerage sees a 16-17% compound annual growth rate in the company's mobile segment revenue between fiscal 2025 and fiscal 2027.
Airtel is also poised to benefit from a surge in free cash flow, as network capex intensity is set to decline, with no spectrum renewals over the next five years, it added.
Bajaj Finance Tie-Up 'Promising'
CLSA, in its note issued on Wednesday, sounded bullish on the company's financial services platform Airtel Finance. To accelerate growth, Airtel Finance has partnered with Bajaj Finance, one of India's top NBFCs, and "a co-branded Insta-EMI card has gone live on the Airtel Thanks app," it said.
This partnership is "promising," CLSA claimed, adding that Airtel Finance’s prospects are high as "200 million Bharti subscribers do not overlap with Bajaj Finance.".
The brokerage has maintained a target price of Rs 1,890 per share for Airtel, indicating a potential upside of 17%.
Shares of Bharti Airtel were trading 0.7% higher at Rs 1,628 apiece on the BSE at 3:13 p.m. on Thursday, compared to 0.83% advance in the benchmark Sensex. The stock has risen by around 36% over the past 12 months.
