India's leading telecom operator, Bharti Airtel, is poised for a significant 24% upside, according to a recent analysis by Kotak Equities. The brokerage firm has assigned a 'buy' call for Bharti Airtel stock, citing a compelling combination of factors driving its optimistic outlook.
Key Drivers for Bharti Airtel's Growth
Kotak Equities emphasizes several core elements supporting its positive forecast. These include sustained growth in Average Revenue Per User (ARPU), robust Free Cash Flow (FCF) generation, and an anticipated increase in shareholder payouts over the coming years. Analysts believe that organic premiumisation efforts and future tariff adjustments will be crucial in driving healthy revenue and earnings expansion for the company.
Furthermore, moderating capital expenditure is expected to bolster deleveraging efforts and enhance cash returns to investors. The brokerage projects a 14% EBITDA CAGR, a 30% EPS CAGR, and a 6% FCF yield spanning FY2026-29E, indicating strong financial performance ahead.
Addressing Investor Concerns
While the stock has experienced a short-to-medium term correction, Kotak Equities views concerns regarding potential stake sales by Singtel as largely overstated. The firm maintains that the risk-reward profile for Bharti Airtel remains attractive, especially with the stock currently trading at 8X EV/EBITDA on March 2028E estimates following its recent market adjustments.
The widening gap between projected EBITDA growth and EPS growth reflects the positive impact of deleveraging. As Bharti Airtel's debt burden diminishes, a corresponding reduction in interest costs is expected to significantly boost profitability, allowing an estimated 14% operating growth to translate into nearly 30% earnings growth.
“Bharti Airtel offers a compelling combination of sustained Average Revenue Per User (ARPU) growth, strong Free cash flow (FCF) and rising shareholder payouts over the next few years,” stated Kotak Equities in their report.
The estimated 6% free cash flow yield provides an independent validation for the investment case, as it does not solely rely on the timely implementation of tariff hikes, offering an additional layer of confidence for investors.