Whalesbook
ICICI Securities forecasts a significant financial uplift for Bharti Airtel and Jio Platforms, projecting them to enter a 'value creation zone' by 2028. This phase is characterized by nearly doubling their Return on Capital Employed (RoCE) and generating stronger free cash flows. Bharti Airtel's RoCE is expected to climb from 14.2% in FY25 to 28.4% by FY28, while Jio Platforms' RoCE is projected to rise from 14.3% to 21.4% in the same period. Jio Platforms, which is preparing for an IPO in early 2026, is estimated to reach a valuation of USD 148 billion by September 2027, with its free cash flow tripling to Rs 558 billion by FY28.
The core driver for this positive shift is that network infrastructure spending by both companies is now projected to be less than the annual depreciation of their existing assets. This means they will retain more cash, boosting profitability and enabling faster debt reduction and potentially generous dividend payouts. FY26 is highlighted as an inflection point for Bharti Airtel, where free cash flow generation is expected to surpass net profit.
This improvement is supported by stable telecom pricing and the strategic push towards 5G services, which command higher monthly charges. Both operators are also expanding into high-growth areas like fixed broadband and enterprise digital services, including cloud computing and cybersecurity, which offer higher margins.
Historically, the period FY12-20 was termed 'capital destruction' due to intense competition and spectrum costs. FY21-25 was 'value protection' with heavy investments. The upcoming FY26-28 is anticipated as the 'value creation' age, where these investments will yield substantial financial benefits.
Impact:
This news signals a strong positive outlook for India's dominant telecom players, potentially leading to increased investor confidence, higher stock valuations, significant debt reduction, and improved shareholder returns through dividends. It marks a maturing phase for the telecom sector, moving from heavy investment to profitable growth.
Rating: 8/10
Difficult terms:
- Return on Capital Employed (RoCE): A profitability ratio indicating how effectively a company uses its capital (debt and equity) to generate profits. A higher RoCE suggests better efficiency.
- Free Cash Flow (FCF): The cash a company generates after deducting operating expenses and capital expenditures. It represents the cash available for debt repayment, dividends, or reinvestment.
- Depreciation: The systematic allocation of the cost of a tangible asset over its useful life. It reflects the decrease in the asset's value due to wear and tear or obsolescence.
- Capital Expenditure (Capex): Funds used by a company to acquire, upgrade, or maintain its physical assets, such as buildings, machinery, or technology.
- Initial Public Offering (IPO): The first time a private company offers its shares to the public, allowing it to raise capital.
- 5G penetration: The extent to which 5G mobile network services and devices have been adopted by subscribers within a given market.
- Cloud Computing: The delivery of computing services—including servers, storage, software, and analytics—over the internet ('the cloud') to offer flexible resources and faster innovation.