Axis Capital initiated coverage with a BUY rating for Bharti Airtel, setting a target price of Rs 1,303. In its research report, Axis Capital emphasised that Bharti Airtel presents a compelling investment opportunity, riding on the secular trends of subscriber premiumisation, upside from 5G, strong execution, stable competition, and supportive government policies.
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Organic ARPU Uplift
Specifically, Axis Capital highlighted the organic nature of Airtel's subscriber base, stating that the ongoing trend of subscriber premiumisation—upgrades from feature phones to 4G smartphones, prepaid to postpaid, and consumption of additional services in postpaid—will help Bharti grow its blended ARPU.
Tariff Corrections
Axis estimated that these organic shifts should lead to a 7-10 percent ARPU uplift in the next 12-18 months, even in the absence of a tariff hike. The company noted that the process of repairing the telecom sector started in December 2019 with the first set of tariff hikes, followed by additional hikes in 2021 and 2022.
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Overall, entry-level voice and data rates have risen 35-420 percent, and Bharti’s ARPU has increased around 60 during the same time period. However, Axis Capital believes that tariff hikes in the next 9-12 months are unlikely.
5G in Mobile and Broadband Segments
According to Axis Capital, 5G has accelerated revenue growth for telcos globally, with a surge in data usage and, in some cases, differential pricing. Considering India is no different in this trend, the company does not expect telcos to price 5G differently. The higher capacity of 5G to offer higher/unlimited data at premium prices will help lift ARPU. According to the report, wireless broadband (FWA) can lift Bharti's broadband revenue by 70-90 percent.
Stable Competitive Environment
The company also expects the current stability in competition to sustain, likely supporting a rise in tariffs. Considering the scenario of Vodafone Idea's (Vi) weak 5G offering, Axis Capital, in the near term of around 9-12 months, expects Airtel to focus on capturing Vi's premium subscribers as they upgrade to 5G handsets.
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The company emphasised that Bharti's strong financial position, spectrum portfolio, and execution are likely to aid its continued share gains, with key risks involving slower 5G ramp-up impacting mobile/broadband segments and increased competition in the India mobile sector, among others.
