Reliance Jio IPO will be stock rerating catalyst for Airtel: CLSA
Bharti Airtel, both of which control 78% of India’s mobile market, according to global brokerage firm CLSA.
«BUY-rated Reliance Industries holds 67% of RJio and valuation is 60% higher than the 33% stake from the 2020 sale that raised US$20bn. We also expect RJio’s planned IPO to serve as a further catalyst for BUY-rated Bharti stock,» CLSA analyst Deepti Chaturvedi said.
The analyst expects Jio's leadership and Bharti's execution to lead the sector to $38 billion annual revenue by FY26.
«In a blue sky scenario, the duo’s revenue could rise up to 50% higher, to $47 billion by FY26, if they achieve 90% combined share and ARPU (average revenue per user) reaches Rs 300. In addition, a boost from 5G’s fixed wireless access (FWA) and industrial internet could further accelerate growth,» she said.
While Jio has more subscribers at 460 million, Airtel has the highest ARPU at Rs 203.
CLSA has valued Jio in Reliance Industries SOTP (target price Rs 3,060) at $111 billion EV based on 11.5x EV/Ebitda, 60% higher than the 33% equity sale that raised $20bn in 2020.
Airtel is valued at 8.5x consolidated Ebitda to arrive at a target price of Rs 1,100.
Shares of RIL were trading 0.3% higher at Rs 2,395 while Airtel was also marginally up at Rs 972.75.
«While Bharti and RJio enjoyed similar 18-19% CAGRs in mobile revenue over FY20-23, Bharti India’s growth pulled ahead in 1HFY24. Nevertheless, we expect RJio’s greater investment to pay off with faster EBITDA growth over the next three years.
However, Bharti is more efficient at allocating capital. We expect it to book a higher ROCE than RJio and forecast US$10bn annual operating cash flow by FY26,» CLSA said.
While Jio is currently unlisted, CLSA has advised investors to gain
