Nomura Prefers Airtel in Telecom Sector Despite Jio’s Upcoming IPO

Nomura Backs Airtel as Jio Prepares for Market Debut

As Jio Platforms gears up for its IPO, analysts at Nomura see Bharti Airtel as the stronger investment in the competitive telecom landscape.

Valuation Insights: Airtel vs. Jio

According to a Bloomberg report, Jio’s IPO shares are projected to be priced between ₹1,065 and ₹1,119. Nomura estimates that JPL’s implied FY28F EV/Ebitda will range from 10.5x to 10.9x, which suggests that Bharti Airtel’s implied FY28F EV/Ebitda of 9.2x is significantly undervalued by 12-15% compared to Jio’s. This discrepancy highlights a potential investment opportunity for those considering Airtel amidst Jio’s impending market entry.

Subscriber Dynamics and Tariff Strategies

Nomura analysts, Bineet Banka and Abhishek Bhandari, point out that Jio will need to showcase growth to its public shareholders, likely through tariff hikes. However, this strategy could lead to subscriber attrition, particularly given Jio’s customer base, which is more price-sensitive compared to Airtel’s higher proportion of premium subscribers. Airtel’s customer profile is expected to provide a buffer against potential downgrading and subscriber losses following the anticipated tariff increases in the third quarter of FY27.

Performance Metrics: ARPU Growth and Retention

The analysts noted that during the last tariff hike in July 2024, Airtel recorded the highest average revenue per user (ARPU) growth among its peers, outperforming Jio. This growth can be attributed to Airtel’s ability to retain subscribers effectively, adding 2% to its subscriber base over the following three quarters, while Jio experienced a slight decline of 0.3%. Such metrics underscore Airtel’s resilience and strategic positioning in the market.

Market Sentiment and Future Outlook

In a recent note, Motilal Oswal Financial Services echoed Nomura’s sentiment, suggesting that the case for a tariff hike is strengthening, especially with JPL’s IPO and Vodafone Idea’s upcoming fundraising efforts. They anticipate a smartphone tariff increase of approximately 15% in December 2026, which could further enhance earnings for both Airtel and Jio. Despite concerns about a potential shift in telecom allocations from Airtel to Jio due to the IPO, analysts believe these fears are overstated, given Jio’s limited initial free float compared to Airtel’s established foreign institutional and domestic institutional ownership.

Key Highlights

• Jio’s IPO could value the company at ₹10.3 trillion, while Airtel stands at ₹9.5 trillion.
• Nomura estimates Airtel’s FY28F EV/Ebitda at a 12-15% discount compared to Jio.
• Airtel’s premium subscriber base may protect it from subscriber losses post-tariff hikes.
• During the last tariff hike, Airtel achieved the highest ARPU growth among peers.
• Analysts expect a 15% tariff hike in December 2026, strengthening earnings outlook for both companies.

Investor Note: As Jio prepares for its IPO, investors should consider Bharti Airtel’s strong fundamentals and subscriber retention capabilities, which position it well to navigate the evolving telecom landscape and capitalize on potential tariff hikes.