Gaurav Malhotra of Axis Capital positive on Bharti Airtel, prefers Indus Towers over Vodafone Idea

Sharing a cautious but strategic outlook on the Indian telecom sector, Gaurav Malhotra, Executive Director at Axis Capital, expressed a positive view on Bharti Airtel while advising investors to be wary of Vodafone Idea’s challenges. He also suggests that Indus Towers may offer a more stable way to gain exposure to the sector’s dynamics.

On Vodafone Idea, Malhotra confirmed that Axis Capital’s published view is a ‘reduce’ rating. He cited several well-known headwinds facing the company, including uncertainties surrounding the adjusted gross revenue (AGR) issue, a precarious cash flow situation, and the failure to raise necessary debt funding more than a year and a half after its equity fundraise. “There are just too many imponderables around the AGR issue, the cash flow situation, etc.,” he said, cautioning against getting carried away by intermittent positive news flow, which tends to be temporary.

As an alternative, Malhotra suggested Indus Towers, on which the firm has an ‘add’ rating. He described it as a “lower beta play on what happens with Vodafone.” The rationale is twofold: the valuation is supportive and already reflects the uncertainties surrounding Vodafone Idea, and the stock is attractive from a free cash flow (FCF) yield perspective. This makes it a potentially safer investment for those wanting to bet on the sector’s stability.

Regarding Bharti Airtel, Malhotra expressed a ‘quite positive’ stance. He highlighted strong earnings visibility for the next two to three years, driven by a confluence of factors including tariff hikes, premiumisation of its customer base, and growing traction in its fixed wireless access (FWA) services. While acknowledging that valuations are not cheap compared to historical or global peers, he believes they are justified by robust earnings visibility and increasing free cash flow generation, which should lead to higher dividend payouts.

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Malhotra also downplayed the significance of transient subscriber data, stating that the more critical metric for Bharti is the organic upgradation of its existing 2G subscribers to 4G. To track this premiumisation trend, he advised investors to monitor metrics like rising data consumption per user, growth in the proportion of post-paid subscribers, and updates on its converged offering, Airtel Black.

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On Jio, he stated that its financial performance is expected to be largely similar to Bharti’s.

For the entire interview, watch the accompanying video

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