CLSA recommends Bharti Airtel and RIL shares ahead of RJio IPO

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CLSA recommends Bharti Airtel and RIL shares ahead of RJio IPO
Credit: © Reuters.

Investment firm CLSA has recommended buying shares of Bharti Airtel (NS: BRTI ) and Reliance Industries (NS: RELI ) Limited (RIL) in anticipation of the upcoming initial public offering (IPO) of RJio, which is expected to significantly enhance the valuation of these telecom giants. RJio, a major player within RIL's portfolio, is valued at an enterprise value (EV) of $111 billion.

Bharti Airtel is expected to reach a target price of Rs 1,110, bolstered by its industry-leading average revenue per user (ARPU) at Rs 203 and a strategic focus on premium product offerings. The company has been outperforming in terms of growth in the first half of FY24 and is projected to generate an annual operating cash flow of $10 billion by FY26. The telecom sector's revenue in India is forecasted to rise to $38 billion by FY26, with Bharti Airtel and RIL through RJio collectively commanding a dominant market share of 78%.

RJio boasts a subscriber base of 460 million, contributing to the duo's significant market presence. RIL’s stock has seen a slight increase to Rs 2,395 with Bharti Airtel also experiencing an uptick at Rs 972.75. The growth in RIL’s stake in RJio represents a 60% appreciation from its $20 billion equity sale back in 2020.

The potential combined market dominance of these companies could reach 90% with an ARPU increase to Rs 300, potentially pushing sector revenues up to $47 billion by FY26. Despite facing competition from Vodafone (NASDAQ: VOD ) Idea, which holds a reduced market share of 16% amid a delayed rollout of its 5G services, Bharti Airtel’s capital efficiency and anticipated higher return on capital employed (ROCE) than Jio position it favorably in the market.

CLSA has set RIL’s target price at Rs 3,060, citing both firms as central players in India's digital expansion. The investment recommendations favor RIL shares due to Jio’s current unlisted status and the positive outlook for the sector.

InvestingPro Insights

The investment landscape for Bharti Airtel (BRTI) and Reliance Industries Limited (RELI) is looking promising, especially with the anticipated IPO of RJio. Here are some InvestingPro Insights to consider:

For Bharti Airtel, an InvestingPro Tip highlights the company's high earnings quality, with free cash flow exceeding net income, suggesting a healthy financial position. Additionally, the company's strong earnings have analysts predicting the ability to maintain dividend payments, which is key for investors seeking stable income streams. With a 52-week high trading point, it's clear that investor confidence is strong, bolstered by the company's consistent earnings per share growth.

On the other hand, Reliance Industries Limited shows a robust history of raising dividends, with a track record of 3 consecutive years of increases, and a notable 23 consecutive years of maintained dividend payments. This consistency underscores the company's financial stability and commitment to shareholder returns. The InvestingPro Data further reveals a significant one-year price total return of 125.6%, reflecting the company's strong market performance.

Investors interested in deeper analysis and additional insights can explore the full range of InvestingPro Tips, which includes 15 for Bharti Airtel and 13 for Reliance Industries Limited. With InvestingPro's subscription now on a special Black Friday sale, offering discounts of up to 55%, it's an opportune time for investors to access valuable market data and tips that could guide their investment decisions.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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