Buy Bharti Airtel Ltd For Target Rs.2,395 by Motilal Oswal Financial Services Ltd
Healthy 2Q; Africa outperforms; premiumization drives industry-leading wireless ARPU
* Bharti Airtel (Bharti) delivered a healthy 2QFY26, with consol. EBITDA rising 5% QoQ (2% ahead), driven largely by outperformance in Airtel Africa (AAF, reported EBITDA up 8% QoQ, ~5% ahead) and robust wireless ARPU uptick.
* India wireless revenue/EBITDA grew ~3-4% QoQ (vs. ~3-5% QoQ for RJio), driven by one additional day QoQ and premiumization of subscriber mix (wireless ARPU up ~2.7% QoQ vs. ~1.5% QoQ for RJio). Rationalization of INR299 plan led to muted wireless net adds of 0.7m (vs. ~5.4m for RJio).
* Subscriber net adds in Homes witnessed modest recovery at ~0.68m (though trail ~1.4m QoQ for RJio), while ARPU declined sharp ~3.5% QoQ.
* Reported consol. capex rose ~10% YoY to INR125b (though -7% QoQ), driven by higher capex in Africa. India capex (ex-Indus) rose ~5% YoY.
* Consol. FCF (after leases and interest payments) moderated to INR97b (vs. ~INR146b YoY), despite improvement in OCF (after WC and leases) to INR321b (vs. INR286b YoY), largely due to commencement of deferred 5G spectrum repayments (INR44b higher YoY) and land purchase (INR29b).
* Bharti’s consol. net debt (ex-lease) rose INR64b QoQ to INR883b, with leverage broadly stable QoQ at 0.7x, largely due to dividend payouts.
* The stock has performed well recently (with ~20% return since Oct’26), industry wide-tariff hike remains the key near-term trigger (build in ~15% smartphone plan hikes from Mar’27), while a change in tariff construct to usage-linked plans could drive sustainable organic ARPU growth, even without headline tariff hikes.
* Range-bound core capex, along with robust earnings, should enable Bharti to deliver ~INR2.3t+ FCF over FY26-29 and become net cash (ex-leases), with RoCE climbing to ~20%+ by FY28.
* We model a CAGR of ~14-15% in Bharti’s consolidated revenue/reported EBITDA over FY26-29, driven by:
1) flow-through of the ~15% tariff hike in India wireless
2) a strong growth opportunity in Homes
3) continued double-digit CC growth in Africa
4) steady growth in B2B offerings.
* Reiterate our BUY rating with SoTP-based revised TP of INR2,395. The India wireless and homes businesses are valued at DCF-implied ~11.8x FY29E EV/EBITDA. Risk-reward remains favorable (bull: INR3,035; bear: INR1,775).
Valuation and view
* Bharti’s premiumization agenda (with record quarterly postpaid net adds) continues to deliver industry-leading ARPU, robust FCF generation, and improvement in return ratios.
* The stock has performed well recently (with ~20% return since Oct’26). Industrywide tariff hike remains the key near term trigger (build in ~15% smartphone plan hikes from Mar’27), while a change in tariff construct to usage-linked plans could drive sustainable organic ARPU growth, even without headline tariff hikes.
* Range-bound core capex, along with robust earnings, should enable Bharti to deliver ~INR2.3t+ FCF over FY26-29 and become net cash (ex-leases) with RoCE climbing to ~20%+ by FY28.
? We model a CAGR of ~14-15% in Bharti’s consolidated revenue/reported EBITDA over FY26-29, driven by:
1) flow-through of the ~15% tariff hike in India wireless
2) a strong growth opportunity in Homes
3) continued double-digit CC growth in Africa
4) steady growth in B2B offerings.
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