Emkay on telecom: Sell Vodafone Idea, Reduce Bharti Airtel, Buy Indus Tower

Telecom stocks to buy, sell: Citing expensive valuations and low growth outlook, Emkay Global is cautious on the telecom sector. It initiated coverage on Bharti Hexacom with 'Reduce' rating

Emkay on telecom stocks: Holding telecom stocks – Bharti Airtel, Vodafone Idea, Bharti Hexacom -- in your portfolio may be less rewarding in the near-term, caution analysts at Emkay Global Financial Services.

 

From an investment viewpoint, analysts at the brokerage believe the risk-reward for telecommunications stocks remains unattractive given the tepid growth expectations and expensive valuations. They have, thus, assigned 'Reduce' rating to Bharti Airtel share price and 'Sell' to Vodafone Idea.

 

The brokerage has also initiated coverage on Bharti Hexacom shares with a 'Reduce' rating.

 

"Indus Towers is our only 'Buy' in this space, given its modest growth estimate and attractive valuations,' Emkay said in its recent report.

 

Emkay Global's investment strategy for telecom stocks:

 

There are, broadly, two concerns guiding the brokerage’s investment rationale. First is the purchasing power parity adjusted-average revenue in India.

 

Arpu growth outlook:

According to the brokerage, low telecom tariffs vis-à-vis the rest of the world made a case for strong Arpu (average revenue per user) growth in India.

 

"However, factoring in GDP per capita and average cinema ticket prices – factors affecting the purchasing power parity – Arpu in India are only marginally lower than global peers. After the tariff hike in financial year 2024-25 (FY25), we believe the gap would become narrower," it said.

 

Moreover, the brokerage believes that since telecom Arpu growth, globally, lags inflation, it would be an optimistic assumption to think the sustained Arpu increase would be significantly higher than inflation. Notably, India's retail inflation stood at barely 1.5 per cent in July 2025.

 

In the June 2025 quarter (Q1FY26), Bharti Airtel’s Arpu stood at ₹250 (vs ₹245 Q-o-Q), Jio’s was ₹208.8 (vs ₹206.2 Q-o-Q), and Vodafone Idea’s Arpu was ₹165. (vs ₹164 Q-o-Q).

 

Recouping Reliance Jio-led losses:

Secondly, Emkay Global believes telecom service providers have recouped losses made since Reliance Jio’s foray in the market.

 

During FY09-16, the Indian telecom industry witnessed a steady 12 per cent CAGR despite various unfavorable events. However, Reliance Jio's aggressive pricing resulted in a sharp 40-per cent reduction in the industry size over FY16-19.

 

"During FY20-25, the industry saw 16 per cent CAGR with consistent tariff hikes, recouping its losses. Considering that the losses have been retrieved, we expect the industry growth rate to slow down to previous growth trends," Emkay Global cautioned.

 

Telecom stocks to buy and sell

Emkay Global has assigned 'Reduce' ratings to Bharti Airtel and Bharti Hexacom given the stocks' expensive valuations.

 

"Bharti Airtel's consolidated valuations at FY27E EV/Ebitda of 10.2x appear reasonable, although these include Ebitda from Indus Towers and Airtel Africa – valuations for both are significantly lower. However, the two stocks' FY27E EV/Ebitda valuations (12.9x for Bharti Airtel India business and 17.1x for Bharti Hexacom) are expensive," it said.

 

The brokerage has a set Bharti Airtel share price target at ₹1,900 and Bharti Hexacom share price target at ₹1,800. This suggests a potential downside of 1.5 per cent and 3.1 per cent from current levels.

 

For Vodafone Idea stock, the brokerage has a 'Sell' rating with a share price target of ₹6. Emkay remains cautious on the stock given the lack of clarity on the company's plan to repay its debts.

 

"Steep adjusted gross revenue (AGR) dues and spectrum liabilities have curtailed Vodafone Idea’s ability to invest in network expansion, resulting in market share loss and insufficient Ebitda generation. In the absence of any clarity on the government’s action with respect to the debt timeline and quantum, we have a cautious stance on the company," Emkay Global said.

 

That said, Indus Towers stock remains the brokerage's only 'Buy' in the telecom sector given its attractive valuations of 5.7x FY27E EV/Ebitda.

 

"We build in steady growth in tenancy for Indus Towers as the 5G rollout moves from coverage-led to capacity-led expansion, and Vi embarks on a 3-year capex plan. This will drive steady growth in Ebitda and cash flow generation," the brokerage said.

 

It assumes Indus Tower’s Ebitda CAGR to be 9.1 per cent over FY25-28 (excluding provision reversals), with FY26 free cash flow (FCF) yield at 7.0 per cent.

 

Emkay has a share price target of ₹410 for Indus Tower stock, translating into an upside of 15.5 per cent.