Vodafone Idea, Bharti Airtel shares: Ratings, stock price targets & outlook

The long-term sustainability of Vodafone Idea Ltd (VIL) is still contingent on significant favourable government support, JM Financial said while expecting Bharti Airtel Ltd, Bharti Hexaware Ltd and unlisted Reliance Jio Infocomm are likely to get to net cash position by FY29-30. The brokerage said Bharti Airtel and Jio's free cash flow (FCF) growth story stays intact on tariff hikes & capex normalisation.

The brokerage has reiterated its high-conviction 'Buy' on Bharti Airtel. It maintained its 'Buy' call on Bharti Hexacom Ltd and positive view on Jio. That said it maintained its 'Sell' recommendation on VIL and 'Hold' rating on Indus Towers Ltd.

Vodafone Idea target price: Rs 10
JM Financial said VIL's recently concluded Rs 24,000 crore equity fundraise has ensured its medium-term sustainability. However, for the company to turn around into a sustainable telco, it might need multiple significant tariff hikes that can boost ARPU to Rs 380 by FY27 against Rs 156 in Q2, so as to meet the annual Rs 43,000 crore payment obligation to government of India (GoI) over FY27-31. VIL needs to pay Rs 29,100 crore payment in FY26.

Also, Vodafone Idea may need a partial relief from GoI dues either via conversion to equity or further extension of moratorium, with debt waiver being ruled out as per new Telecommunications Act 2023.

Besides, VIL's turnaround would also be dependent on its ability to internally fund a sharp sustainable jump in capex to Rs 10,000-15,000 crore per annum in the long term or 15-20 per cent of revenue (in line with 16-20 per cent of revenue assumed for Bharti and Jio).

"Our calculation suggests VIL needs ARPU to jump sharply to Rs 380 in FY27 to meet the annual payment obligation; else VIL might face a shortfall of Rs 40,000 crore in FY27 towards payment of GoI dues which could lead to minority stake getting diluted to ~28.6% from the current 39.5 per cent if GoI converts this shortfall into equity. Hence, we maintain SELL on VIL (unchanged TP of Rs 10/share). However, in our bull case scenario, VIL's fair value could jump to Rs 15/share," it said.

Bharti Airtel target price
JM said it has an unchanged one-year target price of Rs 1,850 and three-year target price of Rs 2,400 on Bharti Airtel, implying a three-year IRR potential of 15 per cent, as it believes India wireless business tariff hikes are likely to be more frequent given the consolidated industry structure, and higher ARPU requirement for Jio not only to justify its significant 5G capex but also given its potential listing plans. Bharti is the biggest beneficiary of higher tariffs given the sticky and premium quality of its subs.

"We expect Bharti’s India wireless ARPU to grow at a CAGR of 11 per cent to Rs 310 in FY28 driving consolidated Ebitda CAGR of 13 per cent over FY24-28. ARPU growth aided by likely moderation in capex will drive Bharti’s FCF from FY25, enabling it to get to net cash by FY29; this will also aid in accretion in equity value," it said.

Bharti Hexacom, Indus Towers
JM said it has 'Buy' rating on Bharti Hexacom with an unchanged one-year target of Rs 1,445 and three-year target of Rs 1,980, implying a 3-year IRR potential of 15 oer cent, as it sees Bharti Hexacom as a midcap pure-play on wireless ARPU growth story. It also maintained its positive view on Jio. Meanwhile, JM Financial maintained its 'Hold' on Indus Tower with an unchanged target price of Rs 350 due to risk to long-term survivability of Vodafone Idea.