Bharti Airtel premiumisation and tariff hike prospects underpin robust free cash flow growth

Investment View and Valuation

In its August 5, 2026 results update, Motilal Oswal Financial Services Ltd. (MOFSL) reiterated its Buy rating on Bharti Airtel. The broker considers Bharti Airtel its preferred telecom pick, supported by robust free cash flow generation, improving return ratios and better organic ARPU growth than peers through subscriber premiumisation.

MOFSL has set a target price of Rs2,335, based on a sum-of-the-parts valuation, versus the report CMP of Rs1,964.

Strong 1QFY27 Operational Performance

Bharti Airtel reported a strong 1QFY27 performance, with consolidated revenue and EBITDA ahead of MOFSL's estimates. Adjusted attributable PAT increased year on year, although higher finance costs and depreciation resulted in profit before tax and PAT falling below estimates.

The EBITDA outperformance was supported by India wireless, Airtel Africa and Airtel Business. Reported PBT before joint ventures was below estimate because net finance costs were 23% above estimate, while depreciation and amortisation was also higher. Adjusted attributable PAT was 7% below estimate, largely because of the higher finance costs.

Segment Performance

India Wireless

India wireless revenue increased 3.8% quarter on quarter and EBITDA rose 4.1% to Rs182 billion, implying about 65% incremental margins. Wireless ARPU increased 2.6% quarter on quarter to Rs264, aided by one extra day in the quarter and ongoing subscriber-mix premiumisation. Net additions were 3.3 million.

Airtel Business and Airtel Africa

Airtel Business revenue grew 3% quarter on quarter and 12% year on year, while its EBITDA margin expanded about 105 basis points quarter on quarter to 44%.

Airtel Africa reported revenue growth of about 10% quarter on quarter and 45% year on year in rupee terms. EBITDA increased about 9% quarter on quarter and 52% year on year.

Homes

Homes growth moderated, with net additions falling to 0.47 million from about 1.13 million in the prior quarter. ARPU declined about 1% quarter on quarter to Rs523, reflecting calibrated subscriber acquisition and higher costs for fixed wireless access customer-premise equipment.

Cash Flow, Capex and Leverage

Despite elevated investment, consolidated free cash flow after leases and interest was Rs140 billion in 1QFY27. Committed capex rose 61% year on year to Rs134 billion, driven by front-loaded Airtel Africa capex. India capex excluding Indus Towers increased 50% year on year to Rs80 billion.

Consolidated net debt excluding leases declined Rs92 billion quarter on quarter to Rs818 billion, reducing leverage to 0.69 times from 0.79 times.

Management Outlook and Growth Drivers

Management identified several levers for ARPU growth and subscriber premiumisation:

• Premiumisation and upgrades to unlimited plans.
• Fastlane-enabled postpaid adoption.
• Feature-phone-to-smartphone migration.
• Roaming and higher data consumption.

Bharti Airtel added more than 1 million postpaid connections in 1QFY27, taking postpaid customers to about 8% of its wireless base. Management said a consumption-linked industry pricing construct could support annual ARPU growth of about 4-5% over a prolonged period.

In Homes, management is prioritising fibre because of its better longevity, customer experience and lower churn, while deploying fixed wireless access selectively. Radio capex has moderated, with investment now focused on the transport backbone, fibre and data centres. Standalone 5G capex remains marginal.

Airtel Africa remains a long-term growth opportunity. Nxtra plans to increase data-centre capacity from about 120-130 MW to 1 GW over the next few years.

Earnings Estimates and Free Cash Flow Outlook

MOFSL kept its FY27E and FY28E consolidated EBITDA estimates broadly unchanged. A roughly 2% increase in ARPU assumptions offsets a 7-10% reduction in Homes EBITDA.

The broker forecasts about 14% CAGR in consolidated revenue and reported EBITDA over FY26-29E. The forecast is driven by an assumed 15% India wireless tariff hike from 3QFY27, Homes expansion, double-digit constant-currency growth in Africa and steady B2B growth.

MOFSL expects more than Rs2.25 trillion of cumulative free cash flow over FY26-29E, net cash excluding leases by FY28E and RoCE above 20% by FY28E.

Valuation Framework and Key Triggers

The target price is based on a sum-of-the-parts valuation using DCF-implied September 2028E EV/EBITDA multiples of about 12 times for India wireless and Homes, 5 times for DTH and 10 times for Enterprise. The valuation also applies a 25% holding-company discount to Bharti Airtel's stakes in Indus Towers and Airtel Africa.

Key near-term triggers are the anticipated tariff hike and the upcoming JPL IPO.