Airtel's sharp fall in capex boosts free cash flows, ARPU expected to cross Rs 280 by FY26 end: Analysts

A sharp decline in capital expenditure is driving robust free cash flow (FCF) generation and deleveraging for Bharti Airtel which may help drive positive sentiments around the company’s stock, analysts said. India's second largest telco also holds the highest average revenue per user (ARPU) in the industry at Rs 250, which is expected to grow further by the end of the fiscal to over Rs 280 by fiscal year end.

Going forward, analysts expect Bharti’s wireless revenue growth to moderate in the September quarter, with 12% on-year growth expected by brokerage Goldman Sachs.

Bharti Airtel’s consolidated net profit surged nearly 40% on-year to Rs 5,948 crore in the June quarter, as India's second-largest telco added more higher paying smartphone users that boosted data consumption and the ARPU.

The telco's shares rose over 1% in morning trade on the BSE. In afternoon trade, the stock was trading 0.8% higher at Rs 1929.75 in a flat broad market.

“Our net income estimates (over FY26-FY30) are lower by up to 4% as we bake in higher-than -expected finance charges in 1Q,” brokerage Goldman Sachs said in a report Wednesday.

The second largest telco recorded a 2.1% sequential growth in average revenue per user (ARPU) — key performance metric — due to an extra day in the quarter, while it grew 19% on-year due to the impact of the previous tariff hike and improving subscriber mix, Goldman Sachs said.

Bharti’s ARPU could inch up to Rs 284 by the end of this fiscal, with another round of tariff hike expected in December 2025, Goldman added. By FY27, ARPU is expected to cross Rs 297 for Airtel, taking it closer to the company’s stated goal of having an ARPU of over Rs 300.

Meanwhile, rival Reliance Jio’s ARPU growth is expected to grow at a slower pace over the period, according to Goldmand, which pegs the Mukesh Ambani-owned market leader’s metric to reach Rs 217 by the end of FY26, and Rs 226 in FY27.

Airtel’s India mobile capex, which had seen an unexpected material increase in the March quarter, was down 51% sequentially in the quarter ended June, leading to a record FCF generation of $1.6 billion, said Macquarie Capital in a report.

The sharp decline in capex also led to a 6% sequential decline in consolidated net debt to Rs 1.91 lakh crore, said Citi Research in a report.

Capex (excluding passive infrastructure services) moderated sharply to around Rs 5,300 crore (from Rs 10,300 crore in the March quarter) driven by a decrease in capex for wireless, homes and enterprise segments.

This could be partly due to seasonality, with analysts expecting full-year capex to decline 10% on-year.

“We believe this could be due to seasonality and capex should go up over the next three quarters in a way that FY26 capex should still be lower than FY25,” JP Morgan said in a report.

That said, Goldman Sachs does not foresee a new capex cycle for the next 4-5 years, and thus expects strong FCF generation to continue, forecasting a 22% compounded growth in FCF over FY25-FY30, despite resumption of AGR payments starting FY26.

“With our expectation of a decline in capex intensity coupled with the impact from higher tariffs, we forecast a 19%+ FY25-27E FCF CAGR. We expect this to translate into improving shareholder payout and forecast 50% payout ratio at the consolidated level,” Goldman Sachs added.

The brokerage said that in the context of Airtel’s strong growth outlook, improving returns, FCF and returns profile, Airtel is growing 4-5 times faster than global telcos.

Market trackers also expect Airtel’s revenue market share gain to continue. Revenue share for Airtel was up 200 basis points on-year at 41.8%, which is expected to go up further for both Airtel and Jio due to continued pressure on Vodafone Idea’s FCF.

“We believe deleveraging and rising dividends should be the key catalysts for the stock outside of better-than-expected 5G premiumization and tariff hikes,” JP Morgan said.