Buy Bharti Airtel Ltd for the Target Rs. 2,110 by Motilal Oswal Financial Services Ltd
Steady 4Q; remains our preferred pick in telcos
* Bharti reported in-line 4QFY25 performance, with ~1%/2% QoQ growth in India wireless revenue/EBITDA as the residual flow-through of tariff hikes was offset by two fewer days QoQ.
* Consol. capex spiked in 4Q, though FY25 India capex (excl. Indus) at ~INR300b was lower than that in FY24, with capex expected to moderate further in FY26.
* Consol. net debt inched up by ~INR50b due to the redemption of USD1b perpetual bonds, while FCF generation (before spectrum prepayments) remained robust at ~INR97b in 4Q and ~INR390b in FY25.
* We continue to like BHARTI’s superior execution on the premiumization agenda. Further, with a moderation in capex intensity, BHARTI is likely to generate significant FCF of ~INR1t over FY26-27E.
* Bharti continues to outperform (up ~18% in CYTD vs. +4% for Nifty 50) and valuations have re-rated (~11.5x FY27E EV/EBITDA). We believe regular tariff repair (beyond FY27) is key to further re-rating.
* Our FY26-27 estimates are largely unchanged. We model a CAGR of 14%/17% in Bharti’s consol. revenue/EBITDA over FY25-28E, driven by 1) benefits of an anticipated tariff hike of ~15% in India wireless from Dec’25, 2) acceleration in Home broadband net adds, and 3) double-digit growth in Africa.
* We reiterate BUY on Bharti with our SoTP-based revised TP of INR2,110. We value India wireless and homes business on DCF (implies ~13x Jun’27 EV/EBITDA), DTH/Enterprise at 5x/10x Jun’27 EBITDA and BHARTI’s stake in Indus Towers and Airtel Africa at a 25% discount to our TP/CMP.
Broadly in-line 4Q; Wireless steady; Homes and B2B shine
* Bharti’s consol. revenue grew 6% QoQ (27% YoY, in line), led by the fullquarter consolidation of Indus Towers and robust growth in Homes and Africa.
* Consol. EBITDA grew 10% QoQ to INR270b (up 40% YoY, in line), driven by the full-quarter consolidation of Indus and robust 13% QoQ growth in B2B.
* India wireless revenue/EBITDA grew 1-2% QoQ, as the residual benefit of tariff hikes was offset by two fewer days QoQ.
* Homes business continued to benefit from the acceleration in subscriber additions. Enterprise (B2B) EBITDA grew 13% QoQ as margins improved significantly, driven by the exit of low-margin business and continued strong growth in Africa.
* Consolidated capex jumped ~57% QoQ to INR144b, driven by the catch-up of wireless capex, higher investments in data centers and cloud in B2B.
* However, FY25 India capex (excl. Indus) moderated YoY to INR303b (vs. INR334b YoY) and management has guided for FY26 capex to be lower than FY25 levels.
* Reported net debt inched up by ~INR48b QoQ due to the redemption of USD1b perpetual bonds (not part of reported debt earlier) and the prepayment of ~INR60b in spectrum dues pertaining to 2024 auctions.
* FCF generation (after leases and interest, but prior to spectrum prepayments) remained robust at ~INR97b in 4Q and ~INR390b in FY25.
* Bharti used ~INR260b to prepay high-cost spectrum debt, INR24b to purchase an additional stake in Airtel Africa, and announced a dividend of INR16/sh (~INR96b).
Key highlights from the management commentary
* Capex: Bharti’s 4Q capex was higher due to investments in cloud and data centers (in B2B) and the timing of certain shipments in wireless. However, for FY25, India capex (excl. Indus) at INR303b was lower than ~INR334b in FY24, in line with management’s guidance. Management expects capex to further unwind in FY26. Going ahead, the priorities for capex would be investments in the transport layer, Home Broadband, data centers and B2B, while radio capex would decline in FY26, with the completion of the rural rollout.
* Capital allocation: Bharti would like to strike a balance between its priorities such as: 1) deleveraging the balance sheet, 2) stepping up dividend payments, and 3) selective and prudent investments to bolster capabilities in B2B adjacencies. Moreover, management seemed open to increasing its stake in subsidiaries such as Indus Towers and/or Airtel Africa.
* Equity conversion of AGR dues: Management indicated that the company had written to DoT for the option to convert AGR dues into equity to ensure a nondiscriminatory playing field. The decision on whether to ultimately convert GoI dues to equity would be taken by Bharti’s board.
Valuation and view
* We continue to like BHARTI’s superior execution on the premiumization agenda. With moderation in capex intensity, BHARTI is likely to generate significant FCF of ~INR1t over FY26-27E.
* With high-cost debt largely paid up, we believe the priority for cash deployment should be to boost shareholder returns through higher dividends/buybacks. Capital allocation remains the key monitorable.
* Bharti continues to outperform (up ~18% in CYTD vs. +4% for Nifty 50) and valuations have re-rated (~11.5x FY27E EV/EBITDA). We believe regular tariff repair (beyond FY27) is key to further re-rating.
* Our FY26-27 estimates are largely unchanged. We model a CAGR of 14%/17% in Bharti’s consol. revenue/EBITDA over FY25-28E, driven by 1) the benefits of an anticipated tariff hike of ~15% in India wireless from Dec’25, 2) the acceleration in Home broadband net adds, and 3) double-digit growth in Africa.
* We reiterate BUY on Bharti with our SoTP-based revised TP of INR2,110. We value India wireless and homes business on DCF (implies ~13x Jun’27 EV/EBITDA), DTH/Enterprise at 5x/10x Jun’27 EBITDA and BHARTI’s stake in Indus Towers and Airtel Africa at a 25% discount to our TP/CMP.
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