The Indian telecom sector is anticipated to report a stable second quarter (Q2) for FY27, buoyed by consistent subscriber growth, expansion in home broadband services, and an increase in average revenue per user (ARPU). According to Elara Capital, while these factors contribute to a positive outlook, the valuation and impending Initial Public Offering (IPO) of Jio Platforms are expected to play a crucial role in shaping the near-term stock performance of major players.
Q2 Growth Drivers for Airtel and Jio
Elara Capital projects robust financial performance for Bharti Airtel and Reliance Jio, forecasting double-digit growth in both topline revenue and EBITDA for Q2 FY27. Specifically, Airtel is expected to add approximately 4.1 million mobile subscribers, with Jio leading additions at around 7.2 million.
ARPU figures are also set to climb. Airtel's ARPU is estimated to reach Rs 267, marking a 1.2 percent quarter-on-quarter (QoQ) and 4.5 percent year-on-year (YoY) increase. Jio's ARPU is predicted to rise by approximately 1 percent QoQ and 3 percent YoY, reaching Rs 218.
Premiumization and Pack Discontinuation Strategies
A significant driver for ARPU growth, according to Elara, is the ongoing premiumization trend. This involves subscribers migrating to higher-priced plans, upgrading to 4G/5G services, and converting to postpaid connections. Bharti Airtel and Bharti Hexacom are particularly poised to benefit from the discontinuation of lower-value prepaid packs, a move implemented since mid-August, which encourages users to opt for more expensive plans. However, the full impact of this change in Q2 may be partial, depending on individual recharge cycles.
For Jio, the introduction of a Rs 300 Prime membership, offering price protection on eligible plans until September 5, 2027, is seen as a key strategy for customer retention. While beneficial for loyalty, Elara notes that the advantages of any tariff hikes would be limited for subscribers enrolled under this price-protection scheme.
Even Vodafone Idea, which Elara does not rate, showed signs of improvement, adding around 0.75 million subscribers during July-August, indicating enhanced subscriber retention.
Indus Towers, a critical infrastructure provider, is expected to see approximately 1,300 new tower additions and 4,700 tenancy additions, contributing to an estimated 5 percent YoY growth in rental revenue.
Jio Platforms IPO: Valuation and Market Impact
The highly anticipated IPO of Jio Platforms is drawing considerable attention. Media reports suggest a potential listing date of October 28, with a valuation estimated between Rs 13-15 lakh crore. This valuation would significantly exceed Airtel's current market capitalization of approximately Rs 11.1 lakh crore.
Elara Capital remains optimistic about Airtel's prospects, citing a multi-year recovery trajectory for India's telecom sector. This recovery is underpinned by consistent ARPU improvement, structural demand for data services, and reduced incremental capital expenditure. The brokerage has set a target price of Rs 2,427 for Airtel, implying a 34 percent upside from its current market price. For Indus Towers, the target is Rs 495 (27 percent upside), and for Bharti Hexacom, Rs 1,956 (41 percent upside).
Analyst Outlook and Price Targets
Motilal Oswal Financial Services Ltd (MOFSL) addressed concerns regarding a potential shift of investor interest from Airtel once Jio Platforms becomes publicly traded. MOFSL believes these concerns are overstated, primarily because Jio Platforms is expected to have a limited initial free float of around 3 percent. Airtel, in contrast, already boasts broad ownership among Foreign Institutional Investors (FIIs) and Domestic Institutional Investors (DIIs).
Both brokerages suggest that a tariff hike, potentially occurring soon after the Jio Platforms IPO, could lead to strong earnings for both Bharti Airtel and Reliance Jio, possibly triggering a re-rating of their stock multiples. The delay in such tariff hikes has previously impacted both Airtel and Reliance Industries Ltd (RIL) shares, but the case for an industry-wide price adjustment is seen as strengthening post-JPL's IPO and Vodafone Idea's planned fundraising initiatives.