Bharti Airtel’s India business is set to see its free cash flows (FCF) grow to around Rs 36,100 crore by FY26 while Reliance Jio’s is slated to rise to Rs 36,900 crore on the back of expected further tariff hikes, network capex normalisation and strong average revenue per user (ARPU) growth, said analysts.
This compares with around Rs 20,281 crore FCF generated by Airtel’s India business in FY24 and Rs 6,419 crore by Jio. Strong FCF generation, in turn, is slated to drive sharp growth in dividend payouts in the next few years.
Sector analysts expect the telecom industry to achieve an ARPU of Rs 280-310 in the next 3-4 years — from around Rs 208 now — to ring in a higher RoCE (return on capital employed) of 12-15% from the current 8-9% level.
As per analysts, sectoral ARPU growth is slated to come via a combination of faster 2G to 4G/5G conversions, strong postpaid user additions and higher data monetisation amid rising usage on expectations of a rapid expansion of the 5G user base with both Airtel and Jio seeing strong adoption and Vodafone Idea (Vi) too readying to launch 5G in key markets from March.
“We believe (sectoral) ARPU is on a structural uptrend, given the consolidated industry structure and the sector’s need to earn a respectable 15% RoCE on huge capex investments already made in the business and future investment needs,” J M Financial said in a research note.
The brokerage estimates Airtel and Jio to get to “a net cash position by FY29 and FY30 respectively,” aided by a jump in their FCFs, especially as the managements of both telcos expect sharp moderation in capex from FY25 onwards resulting in their long-term capex-to-sales ratios stabilising at around 15-20% of revenue, in line with global peers.
During the pan-India 5G rollouts in the last 2-3 years, capex levels of India’s top telcos was much higher at around 30-50% of revenue.
JM Financial estimates Airtel/Jio annual capex levels to drop to around Rs 28,500 crore/Rs 29,500 crore in FY26 from elevated levels of Rs 33,400 crore/48,900 crore in FY24.
Goldman Sachs, though, cautioned that any meaningful allocation of Bharti’s India FCFs towards acquiring non-India assets could potentially drive some de-rating in the telco’s multiples.
According to the global brokerage, Airtel’s latest plans to buy an additional 5% stake in its Africa unit could “raise capital allocation concerns” since investors want Bharti to invest in its India business, including in any acquisitions in B2B, fintech, or consolidating stake in assets such as data centers, in addition to shareholder payouts. Airtel now owns 57.29% of Airtel Africa Plc via Airtel Africa Mauritius Ltd (AAML) — a step down subsidiary.
Analysts added that despite rising adoption of 5G and the tariff hikes last July, monetisation remained limited as 5G customer penetration is at a modest 30-35% due to lack of killer 5G use-cases and 5G smartphone affordability constraints. Monetisation prospects have been further shackled as 5G offers faster speeds at a lower cost/GB of data consumed, especially with Jio and Airtel continuing with unlimited 5G data offerings to hasten upgrades.
