Bharti Airtel vs Jio IPO: Nomura sees valuation gap narrowing as tariff hikes loom

Bharti Airtel could be better positioned than Jio Platforms to capitalise on the next round of telecom tariff hikes, with its stronger premium subscriber base and relatively attractive valuation likely to support a rerating, according to brokerage firm Nomura.

In a note, Nomura said Bharti Airtel’s valuation discount to Jio Platforms was unjustified and expected the gap to narrow, at least once Jio goes public. “We believe Bharti’s current valuation discount to JPL is unjustified and expect this gap to narrow, at minimum, once JPL goes public.”

The brokerage said Jio Platforms may set its IPO price band at ₹1,065–1,119 per share, implying an equity valuation of ₹9.8 lakh crore to ₹10.3 lakh crore. Including debt and other liabilities, and adjusting for the cash raised through the IPO, Jio’s enterprise value would stand at ₹10.9 lakh crore to ₹11.4 lakh crore.

The implied enterprise value is 11–15% below Nomura’s target of around $133 billion, based on 12 times its estimated EBITDA for June 2028.

At the upper end of the proposed price band, Reliance Industries’ 66.4% stake in Jio would be worth ₹ 481-506 per share. Applying a 20% holding-company discount brings this value down to ₹405 per share, compared with Nomura’s current sum-of-the-parts valuation of ₹541 per share for Jio.

This creates a valuation gap of around ₹136 per Reliance share. However, Nomura believes Reliance’s recent stock-price correction has more than compensated for the lower Jio valuation and the holding-company discount. Reliance shares had fallen 26% year to date as of October 9, compared with a 14% decline in the Nifty50.

Airtel’s valuation discount

Nomura estimates Jio Platforms’ implied FY28 enterprise value-to-EBITDA multiple at 10.5–10.9 times at the proposed IPO valuation. In comparison, Bharti Airtel’s India telecom business is valued at 9.2 times estimated FY28 EBITDA, after adjusting for its investments in Indus Towers, Airtel Africa and other businesses, as well as net debt.

The brokerage believes this discount is difficult to justify, particularly as tariff increases are expected to become a key driver of earnings growth for telecom operators.

“We believe that, following its listing, Jio will likely need to demonstrate growth to public shareholders,” Nomura said. With the period of easy subscriber gains likely ending, tariff hikes could become the primary driver of earnings growth, it added.

Nomura expects the next tariff hike in the December quarter of FY27, after Jio’s listing, and believes Bharti Airtel is better placed to benefit because of its higher proportion of premium subscribers. This customer mix could help the company limit subscriber downgrades and attrition following an increase in tariffs, it said.

Previous tariff hike favoured Airtel

The July 2024 tariff hike offers a measure of how the two operators responded to higher prices. Bharti Airtel recorded stronger average revenue per user (ARPU) growth than Jio over the following three quarters, the brokerage said.

Bharti Airtel’s ARPU rose from ₹211 in the June quarter of FY25 to ₹245 in the March quarter, an increase of ₹34. Jio’s ARPU increased from ₹182 to ₹206 over the same period, a rise of ₹25.

Nomura estimated tariff-hike transmission to ARPU at 69% for Bharti Airtel, compared with 49% for Jio. It attributed Jio’s weaker performance likely to significant subscriber downgrading among its predominantly value-conscious customer base, which has the highest proportion of non-data users.

Subscriber trends also favoured Bharti Airtel. The company added 7 million subscribers in the three quarters following the tariff hike, taking its subscriber base from 355 million to 362 million, a rise of 2%. Jio, in contrast, lost 2 million subscribers, with its base declining from 490 million to 488 million, or 0.3%.

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