A day after Bharti Airtel’s board approved raising up to Rs 21,000 crore through a rights issue, chairman Sunil Bharti Mittal on Monday said the funds will help improve the company’s leverage and simultaneously provide the fuel to accelerate investments across the portfolio to drive competitive and profitable growth.
Among the services listed by Mittal were 5G services, fibre network and data centre business.
“We are conscious of our current leverage ratio which, while we believe is comfortable, is not a sentiment shared by some or all,” Mittal told analysts.
The idea, he said, was not to load the company with additional debt, especially as growing opportunities like 5G need their outlays. “The board approved the fresh capital raise which will allow the company to have a better leverage ratio, stronger and earlier access to building new market opportunity across 5G, fibre and homes, and importantly, give us the needed elbow room and fuel to fearlessly accelerate its mission,” Mittal said.
Saying it was time to raise tariffs, Mittal said Bharti was aiming for an Arpu (average revenue per user) of Rs 200 this fiscal with an eventual target of Rs 300. Bharti’s Arpu during the April-June quarter was Rs 146. The Bharti chief also clarified there were no plans to sell more promoter stake as that would be inappropriate.
Mittal said the rights issue has been designed such that the money will be called for as and when required and closely monitored for utilisation.
The Bharti Airtel board on Sunday approved the rights issue at Rs 535 a share, which includes a premium of Rs 530 per share. The shares will be issued in the ratio of 1 for every 14 held. The promoter and promoter group will not just subscribe to shares they are entitled to but also pick up any unsubscribed shares.
Bharti’s stock has underperformed Sensex in the last six months and hugely over the past year, gaining just 13.5% to Sensex’s 42%. The surprise announcement by Bharti last week had raised concerns because analysts felt there was no immediate need for funds and that the leverage was comfortable.
“Bharti’s surprise capital-raising announcement had raised concerns around whether promoters believe Bharti’s stock is fully valued at Rs 600/share. The participation of promoters in the rights issue to the full extent allays this concern. Rights issue at 10% discount rewards existing shareholders and will address issues around dilution. In our view, this could also set Rs 535 as the floor price for the stock,” analysts at Jefferies wrote on Monday. However, they added that cash flows from the standalone operations are weak and with 5G auctions and sharp market share gains very likely over the next three years, the telco may need to raise capital and this move is a step towards that direction.
“Our analysis of Bharti’s standalone cash flows suggests that despite a sharp rise in Ebitda, Bharti’s Rs 3,900-crore annual payment for AGR along with Rs 7,700-crore spectrum payment starting FY23 may keep free cash flow limited over FY22-23. Over FY17-21, Bharti has reported a cumulative Rs 55,000-crore negative FCF, but its timely sale on investments in subsidiaries (Rs 19,300 crore) and capital raising (Rs 46,200 crore) has helped keep leverage in check,” Jefferies noted.
Mittal also said the industry has been urging the government to attend to some pressing issues inhibiting continued investments in the sector, given the negative-to-low returns. “The taxes on this industry remain high. For every Rs 100 of revenue, Rs 35 goes in various forms of levies. We hope that as we step up and do our part, the government will also favourably look at some of the genuine demands of the industry, enabling a multiplier effect and positive outcome.”