(MENAFN- Live Mint) India's top two operators-Bharti Airtel and Reliance Jio-are entering a phase where they are expected to generate strong profits and returns for shareholders over the next three years.

The push for 5G is driving more premium customers, home broadband is expanding and new digital services for businesses-such as cloud, AI, and cybersecurity-are opening up fresh revenue streams for the operators, according to a note by brokerage house ICICI Securities.

Based on the business potential, the brokerage has pegged Jio's valuation at $148 billion by 2027. In comparison, at the current share price of ₹2,029, Bharti Airtel's current market cap is at $132 billion, according to BSE. ICICI Securities has set a target price for Bharti Airtel's stock at ₹2,400.

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An updated outlook for the sector has come at a time when telecom operators have been complaining about weak return on capital employed (RoCE) amid weak 5G monetization and low telecom tariffs.

Jio is also looking at listing on the stock exchanges in the first half of 2026, thereby improving sentiment. Analysts expect Jio's IPO to be the largest private sector IPOs India has seen.

“We are upgrading our valuations for Indian telcos under coverage. Our renewed optimism stems from the healthier business and financial structures in this space. On the business front, there is greater visibility towards an extended premiumization trend aided by the 5G push, with little scope for downgrades,” said analysts at ICICI Securities in a note dated 24 October.

This phase of value creation in the telecom sector would come in after a gap of 15 years.

Also, telcos' total addressable market (TAM) is expanding via products such as fixed broadband, value-added services along with enterprise offerings, including data centre, software-as-a-service (SaaS) and managed services, the analysts added.

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On prospects of return on capital employed (RoCE), the next two years telecom operators are expected to see an upside in the same owing to reduced capital expenditures as the next round of spectrum renewal would start only from FY30.

According to estimates from ICICI Securities, Bharti's return on capital employed is expected to rise to 28.4% in FY28 from 14.2% in FY25, whereas Reliance Jio's RoCE to jump to 21.4% in FY28 from 14.3% in FY25.

This should be supported by a drop in spectrum net block, as a percentage of gross block. Recapitalization may start only FY30 and beyond, the brokerage house said in the note.

Notably, till FY20, there was an era of capital destruction-equity dilution, increased leverage and negligible shareholder return.

Analysts say the advantage for Indian telcos is the increasing collaboration with global tech giants to distribute their products in India.

For example, Bharti Airtel recently partnered with Perplexity to provide access to the generative AI platform to its users. The company also partnered with Google for an AI data centre. Similarly, Jio also has tie-ups with global firms.

Lately, telecom operators have started focusing on monetizing 5G services.

“We believe the 5G plans can keep moving up in the tariff chain, where we have already seen unlimited 5G-used to start from the 1.5GB per day plan until July 2024, which is now at 2GB per day (adds ₹50 per subs to ARPU). It can keep moving up to being a 2.5GB per day plan and so on, making premiumization secular trend for telcos,” ICICI Securities said in the note.

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Analysts expect a 5G upgrade would drive up tariffs by 17-30% as against that from 4G. This is a meaningful benefit for telcos over the next 3–4 years, as 5G penetration rises.

Jio Platforms reported a 12.8% year-on-year growth in net profit to ₹7,375 crore for the September quarter. Revenue from operations rose 14.6% to ₹36,332 crore. Bharti Airtel is slated to declare its September quarter earnings on 3 November.

Jio's monthly average revenue per user (Arpu) rose 1.2% sequentially to ₹211.4 at the end of September from ₹208.8 at the end of June. In an earnings release, the company said Arpu rose with increased customer engagement, but it was impacted for the time being by the promotional 5G offers. Bharti Airtel is leading the industry with an Arpu of ₹250 at the end of June.

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