Emkay Global keeps 'Reduce' on Bharti Airtel; flags Jio IPO as key risk

Emkay Global has retained its 'Reduce' rating on Bharti Airtel stock despite Africa Ebitda upgrade, citing Arpu risks, valuations, and Jio IPO impact on investor flows and competition

Emkay Global Financial Services has maintained its 'Reduce' rating on Bharti Airtel stock despite the company's Africa arm upgrading Ebitda estimates. The concern, the brokerage said, stems from likely limited upside at current valuations and risks to future earnings triggers. 

The brokerage believes that while operational performance in Africa remains strong, much of the optimism is already priced into the stock. It also flagged that a potential IPO of Reliance Jio could act as a "double-edged sword" for Airtel, altering competitive dynamics as well as investor positioning.

 

"We maintain our cautious stance on Bharti Airtel as current valuations adequately reflect the improving outlook in Africa, while incremental triggers remain uncertain," the brokerage said in a report. 

 

Emkay Global has a share price target of ₹2,000 on Bharti Airtel.

 

Why Africa's Ebitda upgrade isn't entirely positive

 

Bharti Airtel's Africa business has been a key growth driver in recent years, supported by strong subscriber additions, improving data usage, and margin expansion. Emkay Global acknowledged that the upgrade in Ebitda estimates reflects these structural improvements, particularly driven by better cost efficiencies and stable currency trends in key markets.

 

However, the brokerage cautioned that the market has already factored in much of this improvement. "The Africa business continues to deliver, but we believe the positive trajectory is largely embedded in current valuations," it noted.

 

Moreover, a key area of concern for Bharti Airtel remains a sluggish growth in Airtel's average revenue per user (Arpu). While investors have been expecting a steady rise in Arpu, especially with increased data monetisation, any disappointment on this front could weigh on sentiment. 

"With tariff hikes now delayed and expectations moderating, the street has cut the FY25-28 Arpu CAGR estimate for the India Mobility business to 10.2 per cent (from 10.9 per cent). This now stands at ₹313 vs ₹319 earlier," it said.

  Emkay Global highlighted that the pace of Arpu expansion may not match elevated expectations, particularly if competitive intensity or regulatory factors cap pricing power. The Street's Arpu estimates, it said, implies an 11.1-per cent Arpu increase in FY27, on the back of a meagre 5.7 per cent increase in FY26.

 

"The risk-reward remains unfavourable as any moderation in Arpu growth could lead to a de-rating of the stock," the brokerage said.

 

Emkay Global said Bharti Airtel's FY28 Ebitda estimate downgrade for the India Mobility business has been masked at the consolidated level by Airtel Africa's FY28 Ebitda estimate upgrade of 18.5 per cent. Thus the lack of meaningful upside surprises and the possibility of softer Arpu growth limit the scope for further re-rating of the stock.

 

Jio IPO: A double-edged sword for Airtel

 

Another key overhang identified by Emkay Global is the potential initial public offering (IPO) of Reliance Jio. While the listing could unlock value within the telecom sector and attract fresh investor interest, it may also intensify competition for capital and market share.

 

On one hand, a Jio IPO could broaden the telecom investment universe in India, bringing in global investors who may have previously been underweight the sector. This could improve overall sentiment and valuation benchmarks.

 

However, Emkay Global warned that the IPO could also divert investor flows away from incumbent players like Bharti Airtel.

"The requisite exposure to the new RJio IPO issuance will necessitate trimming Bharti, to maintain fund managers' aggregate Indian telecom sector weights. We believe this rotational dynamic structurally caps Bharti Airtel's near-term upside, firmly negating the previously anticipated re-rating catalyst," it said.

 

Additionally, a well-capitalised Jio post-listing could step up competitive intensity in tariffs, network investments, or customer acquisition strategies. This could make it more challenging for Airtel to sustain margin expansion, particularly in its core India business.

 

Reports already suggest RJio's IPO valuation have been narrowed to $120-140 billion from $130-170 billion earlier, likely because the West Asia geopolitical crisis has weakened primary market activity. 

"The lower valuation for RJio can potentially bring down the valuation for Bharti's India business, in our view," it said.

 

What should investors track?

 

Going forward, Emkay Global believes investors should closely monitor the trajectory of Arpu growth across both India and Africa, competitive intensity in the domestic telecom market, and any developments around the timing and pricing of the Jio IPO.

 

While Bharti Airtel remains fundamentally strong with diversified revenue streams and improving operational metrics, the brokerage maintains that the current valuation leaves limited room for upside.