Telcos Q2 preview: Jio Platforms IPO may shape performance; Elara bullish on Airtel, cites Voda Idea improvement

The telecom sector is likely to report a steady second quarter (Q2) of FY27, supported by subscriber additions, home broadband growth and higher average revenue per user (ARPU), according to Elara Capital. The brokerage said near-term stock performance could also hinge on the valuation of Jio Platforms for its upcoming IPO.

Elara expects premiumisation through migration to higher-priced plans, 4G/5G upgrades and conversion to postpaid to support ARPU growth during the quarter.

The brokerage expects Bharti Airtel and Reliance Jio (not listed) to report double-digit topline and EBITDA growth in Q2 FY27, while Bharti Hexacom and Indus Towers are likely to post mid-single-digit topline growth.

Elara expects Airtel and Jio to add around 4.1 million and 7.2 million mobile subscribers, respectively, during the quarter. Airtel's ARPU is estimated to rise 1.2 per cent QoQ (quarter-on-quarter) and 4.5 per cent YoY (year-on-year) to Rs 267, while Jio's ARPU is expected to increase around 1 per cent QoQ and 3 per cent YoY to Rs 218.

Lower-value pack discontinuation

Elara said Airtel and Bharti Hexacom could benefit from the discontinuation of lower-value packs since mid-August, as subscribers are encouraged to move to higher-value plans. However, the brokerage expects the Q2 benefit to be partial, depending on recharge cycles.

Airtel's consolidated revenue is expected to rise 3.1 per cent QoQ, supported by growth in India mobile revenue, along with continued growth in its homes and Africa businesses.

For Jio, the introduction of a Rs 300 Prime membership, which offers price protection on eligible plans until September 5, 2027, could support customer retention. Elara, however, noted that tariff-hike benefits would be limited for subscribers enrolled during the price-protection period.

Vodafone Idea, which is not rated by Elara, added around 0.75 million subscribers during July-August, indicating an improvement in subscriber retention, the brokerage said.

For Indus Towers, Elara expects around 1,300 tower additions and 4,700 tenancy additions, supporting around 5 per cent YoY growth in rental revenue.

Jio Platforms IPO in focus

The brokerage said select media reports indicate a possible October 28 listing at a valuation of Rs 13-15 lakh crore, compared with Airtel's market capitalisation (m-cap) of around Rs 11.1 lakh crore.

"Telcos have reiterated the need for tariff repair, although the timing of an industry-wide hike remains uncertain," Elara said.

The brokerage remains positive on Airtel, citing a multi-year recovery in India's telecom sector driven by ARPU improvement, structural data demand and lower incremental capex.

Elara has a target price of Rs 2,427 for Airtel, implying 34 per cent upside from its assessed market price. It has a target of Rs 495 for Indus Towers, indicating 27 per cent upside, while Bharti Hexacom's target price of Rs 1,956 implies 41 per cent upside from the brokerage's assessed market price.

Meanwhile, Motilal Oswal Financial Services Ltd (MOFSL) said that the main debate ahead of Jio Platforms' impending IPO is whether investors may reduce exposure to Airtel once another large listed telecom option becomes available.

The brokerage said these concerns are overblown because Jio Platforms is expected to have a limited initial free float of about 3 per cent, while Airtel already has wider FII and DII ownership.

MOFSL said expectations of a tariff hike soon after the Jio Platforms' IPO could support strong earnings delivery and potentially lead to a multiple re-rating for both Bharti Airtel and RJio.

It added that the delay in tariff hikes has weighed on the stocks of both Airtel and Reliance Industries Ltd (RIL), but said the case for a tariff hike becomes stronger after the JPL IPO and Voda Idea's planned fundraise.