One of Bharti Airtel Ltd’s key strengths is its strong free cash flow (FCF) generation potential. In the June quarter (Q1FY26), the company delivered a positive surprise on this front, even as its profit and loss performance was largely in line expectations.
For context, while Ebitda rose 3% sequentially to ₹16,274 crore, operating FCF (Ebitda minus capex) surged 37% on quarter to ₹13,316 crore, driven by a sharp 51% sequential decline in capex. Thanks to this robust cash generation, Bharti’s net debt, including lease obligations, fell 6% quarter-on-quarter (QoQ) to ₹1.91 trillion.
The capex-to-revenue ratio nearly halved to 11%, both sequentially and year-on-year (YoY). During the earnings call, the management attributed this to both numerator and denominator effects. Simply put, when capex was underway, there was no corresponding revenue from it. Now, revenue is trickling in from earlier capex and there is no significant need for fresh capex.
Bharti Airtel’s mobile service revenue in India grew 3% QoQ to ₹27,397 crore in Q1FY26 with Arpu (average revenue per user) up 2% to ₹250. Arpu gains were supported by an additional calendar day in the quarter and an improved subscriber mix, with a higher proportion of 4G and postpaid users.
Data revenue per GB stood at $0.10, or about ₹9, nearly one-third of the company’s per GB data revenue in its telecom arm in Africa, Airtel Africa Plc. There, net revenue rose 7% QoQ to $1,164 million in constant currency, and Ebitda increased 8.5% to $676 million.
If the Africa telecom business continues to improve, Bharti’s management might be tempted to buy additional stake in it. What’s more, valuations are attractive. Airtel Africa trades at an EV/Ebitda of 6x if one annualizes the Q1FY26 Ebitda. This is half of Bharti Airtel’s valuation of 12x based on Bloomberg consensus estimates for FY26.
Meanwhile, Bharti’s wholly owned subsidiary Xtelify has recently launched Airtel cloud service aimed at enterprises. Sure, there are many global cloud service providers. But the differentiating favourable factor for Bharti is that the ownership of the company and data is Indian. Also, the cloud service can be bundled with Bharti’s own telecom network. Thus, Bharti becomes the third Indian company, along with Reliance Jio and Tata Communications to enjoy similar advantages.
While the Airtel cloud aids in expanding Bharti’s enterprise business, or B2B service, it may not excite investors, for now. B2B service contributed only about 15% of total revenue in Q1FY26, whereas the rest came from B2C (mobile service, home broadband service and DTH). Moreover, B2B revenue declined for a third straight quarter, falling 5% QoQ to ₹5,057 crore as the company weeded out low-margin customers.
The potential cloud service market size could be ₹60,000 crore, said the management in the earnings call. True, demand for cloud services is growing, and telecom companies have an edge. But cloud services could cannibalize some of the demand for data centre services. Also, cloud services being cheaper than data centre services with a pay-as-you-use model could slow revenue growth.
Even if Bharti’s cloud service succeeds in boosting enterprise revenue in the coming years, it is unlikely to move the needle as it accounts for less than 10% of its sum-of-the-parts valuation.
In that light, the stock’s muted reaction to the Airtel cloud launch is understandable. For the next leg of its rally, Bharti will need a stronger trigger, such as another telecom tariff hike or an inorganic growth move.
