Bharti Airtel’s free cash flow (FCF) is expected to grow to about Rs 56,000 crore by FY26, while Reliance Jio’s FCF is predicted to reach Rs 38,500 crore. This growth is attributed to reduced spending on capital expenditures (capex) and an increase in average revenue per user (ARPU). For comparison, in FY23, Airtel generated Rs 39,360 crore in FCF and Jio generated Rs 14,600 crore.
Rising ARPU
Analysts predict that the monthly ARPU, an important measure of a telecom company’s performance, will rise to between Rs 270 and Rs 300 in the next 3-4 years from the current Rs 183. This increase will be driven by factors such as imminent tariff hikes, faster conversions from 2G to 4G/5G, more postpaid users, and higher data usage with the nationwide rollout of 5G.
JM Financial noted that both Airtel and Jio have indicated that FY24 saw peak capex, and they expect spending to decrease from FY25 as their rapid 5G rollouts across India conclude. This capex normalization, combined with structural growth in ARPU, is expected to boost their free cash flows from FY25 onward.
The report highlighted that India’s ARPU remains one of the lowest globally at $2.2 per month (around Rs 183), compared to the global average of $8-10 per month, $6.9 per month in China, and $20 per month in developed countries. Consequently, they estimate that India’s telecom industry ARPU will grow by 10-11% annually over the next 3-4 years. About 3-4% of this growth will come from upgrades to mobile broadband, more postpaid users, and data monetization, with the remaining 5-6% coming from regular tariff increases.
Market Share
Analysts also expect Airtel and Jio to continue gaining market share at the expense of Vodafone Idea. The telecom joint venture between the UK’s Vodafone and India’s Aditya Birla Group has yet to launch 5G and needs significant tariff hikes but is likely to increase prices gradually to retain customers, given its relatively weaker 4G network. Macquarie Research noted that with Airtel and Jio expanding their 5G networks, they are likely to capture more of Vodafone Idea’s 22 million postpaid users.
JM Financial estimates that Airtel’s capex for its India business will drop to around Rs 27,500 crore in FY25 and Rs 28,600 crore in FY26, down from Rs 33,200 crore in FY24, which included extensive 5G and rural network rollouts. Jio’s capex is expected to decrease to about Rs 30,200 crore in FY25 and Rs 30,700 crore in FY26, compared to the Rs 45,000-55,000 crore spent annually over the past two years (excluding spectrum costs).
However, analysts noted that there is still uncertainty around how Jio and Airtel plan to monetize 5G, as the penetration of 5G subscribers remains below 20%. This is largely due to a lack of compelling 5G use-cases and the high cost of entry-level 5G smartphones. As a result, both companies continue to offer unlimited 5G data and have not provided updates on their 5G monetization strategies.
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