Investec Raises Bharti Airtel Price Target by 60.5%, Predicts Annual Tariff Hikes

Brokerage firm Investec has raised its price target for Bharti Airtel stock by a substantial 60.5% to ₹1,560, while maintaining its hold call, citing a steady path of deleveraging for the telecom major.

This revision follows recent tariff hikes of 20-25% announced by Bharti Airtel, Reliance Jio, and Vodafone Idea, aimed at boosting average revenue per user (ARPU) and profitability. As of 11:40 AM IST, Bharti Airtel share price were trading at ₹1438.50.

Investec anticipates that such tariff hikes could become an annual trend for telecom companies over the next few years. These price increases are expected to benefit all players in the sector by improving ARPU and enhancing return on capital employed (RoCE), thereby aiding in debt reduction.

BofA Securities analysts agree, noting that the recent tariff hikes will enhance cash flows and return ratios across the telecom sector. They highlighted that Vodafone Idea would be the biggest beneficiary due to its pure-play mobile operator status, followed by Bharti Airtel and Reliance Jio.

Other analysts share this positive outlook on price hikes. Morgan Stanley previously estimated that the blended ARPU for Bharti Airtel and Reliance Jio could increase by 16-18% due to these tariff hikes.

Bernstein analysts project that the recent tariff hikes will help Bharti Airtel's ARPU stabilize at over ₹280 by FY26 and reach ₹300 by FY27. Currently, Bharti Airtel has the highest ARPU in the market at ₹209, followed by Jio at ₹181.7 and Vodafone Idea at ₹146, as of the end of Q4 FY24.

Bharti Airtel emphasized the importance of achieving an ARPU above ₹300 for the financial health of India's telecom sector. The company stated, "We believe that this level of ARPU will enable the substantial investments required in network technology and spectrum and offer a modest return on capital."

Investec also commented on the favorable market structure in the telecom industry, which is better positioned to drive improved pricing.

Additionally, Investec initiated coverage on Bharti Hexacom with a 'buy' call, setting a target price of ₹1,240, indicating an 18% upside from the previous closing price. The firm believes Bharti Hexacom is well-placed to benefit from tariff hikes.

Investec praised Reliance Jio's growth, noting its proximity to achieving its target of 50 crore subscribers. However, the brokerage suggests that future growth for Jio will likely be driven more by ARPU increases rather than subscriber additions.