VIL, Airtel, Indus Towers, Bharti Hexacom shares get target price revisions from JPMorgan; what's next?

JPMorgan in its latest note on telecom sector upped target prices for Vodafone Idea Ltd (VIL), Bharti Airtel Ltd, Indus Towers Ltd and Bharti Hexacom  Ltd. The foreign brokerage said the unfavorable AGR ruling by the Supreme Court last month necessitates annual tariff hikes for VIL to be able to pay the spectrum dues, adding that India’s data yield (dollar per GB) and average revenue per user (ARPU) as per cent of GDP per capita remains one of the lowest in the region nine years since Jio’s launch. 

This affordability of service and a benign regulatory environment gives telecom operators the headroom to take successive tariff hikes, before reaching the average trend of Asian peers, the brokerage said.

"We think this could precipitate persistent tariff repair over the next few years. We bake in tariff hikes of 15% in FY27E for the three telcos - Bharti Airtel, Bharti Hexacom and Vodafone Idea. For 2Q, we expect subs losses for incumbents (Airtel/ Vodaofne Idea), however ARPU should enjoy flow through of recent tariff hikes. We upgrade Vodafone Idea to Neutral, and our new pecking order is Indus Towers > Bharti Airtel > Bharti Hexacom  > Vodafone Idea," JPM said.

For Vodafone Idea, JPMorgan has suggested a new target price of Rs 10 from Rs 7, as it baked in another tariff hike of 15 per cent in FY27 and increased its target EV/Ebitda multiple to 12 times from 11.5 times. VIL is still in the early days of proving the success of its strategy that will begin with capex rollout, followed by arresting sub losses before regaining share.  

"We will wait for proof of success in arresting sub losses and balance sheet exposures before turning more constructive," it said. 

JPMorgan called Bharti Airtel as its topped pick. It is baking in another tariff hike of 15 per cent in FY27, which may drive Artel's India wireless revenues/Ebitda by 5-6 per cent and margins by 50 bps in  FY27. The brokerage has increased its target EV/Ebitda multiple to 12.5 times from 11.5 times and suggested a revised target price of Rs 1,920 for Bharti Airtel from Rs 1,670 earlier. The stock remains overweight as JP Morgan continues to expect Bharti to start paying meaningful dividends from
FY25 as free cash flow (FCF) improves and de-leverage occurs.

In the case of Bharti Hexacom, the premium to Bharti Airtel has expanded. JPMorgan said it has increased its  revenues and Ebitda estimates by 4-5 per cent for FY27.
It increased its target price for the stock to Rs 1,580 from Rs 1,330 earlier, as the brokerage upped its target EV/Ebitda from 13 times to 14.5 times. 

JPMorgan maintained overweight on Indus Towers. It is the brokerage's top overall pick in telcos and tower companies. JPMorgan increased the target EV/Ebitda multiple for Indus Towers to 9 times from 8.5 times and upped its price target to Rs 525 from Rs 500 earlier. Vodafone Idea's monthly payments should continue to remain on track along with continuous tower additions in FY25, it said.