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Bharti Airtel operating earnings may grow at 18% over next two years, shares may rally 30%; should you buy?

Bharti Airtel shares have fallen over 2% since the telecom major reported a 164% jump in consolidated net profit at Rs 2,007.8 crore for the quarter ended March 2022. While Bharti Airtel shares have corrected 1.32% so far this year, they have outperformed benchmark NSE Nifty 50 which has tanked over 8%.

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Since around 55.92% stake in Bharti Airtel is held by promoters – Mittal family and Singtel – the scope for selling large stakes to tech majors is not possible. (Reuters)

Bharti Airtel shares have fallen over 2% since the telecom major reported a 164% jump in consolidated net profit at Rs 2,007.8 crore for the quarter ended March 2022. While Bharti Airtel shares have corrected 1.32% so far this year, they have outperformed benchmark NSE Nifty 50 which has tanked over 8%. Going forward, analysts at Axis Securities expect Airtel stock to rally up to 30% as they see operating earnings CAGR of 18% over the next two financial years, backed by continual subscriber gain and ARPU improvement. The company is rapidly expanding and growing its associated business segments, which is also expected to incrementally aid earnings traction and debt reduction.

ARPU improvement to continue:

For the quarter ended 31 March 2022, ARPU stood at Rs 178, Rs 163 in previous quarter and Rs 145 last year in the same quarter, driven by around 20% revision in pre‐paid plans towards the end of November 21. According to analysts, further price interventions are expected in FY23. There are expectations of some tariff increase this year. One more round of tariff increase will take ARPUs to around 200 with a target of Rs 300 to be achieved over a period of time. Overall, ARPUs are likely to see an increase on the back of conversion from prepaid to postpaid.

Market share gains; postpaid to be a key growth drive

Airtel’s business again witnessed strong quarter with double digit growth. Net of Voice segment all the other segments saw growth in high teens. Connectivity, IOT, CPaaS, cloud and data centers all grew substantially. Overall, Bharti Airtel outperformed peers and gained market share. Net additions in 4QFY22 stood at 3.1 million, taking total customer base to 326 million customers. Additionally, the company added over 5 million 4G customers. Going forward, the company believes postpaid to be a key growth driver for the segment, stated Axis Securities report.

Airtel stock rating: Buy
Target price: Rs 905; Upside: 30%

Analyst at Axis Securities value Bharti Airtel on SOTP basis at Rs 905/share, implying a target EV/EBITDA multiple of 7.6x FY24e, vs 6.1x as implied by CMP. “We believe that the industry wide revision of prepaid tariffs in 3QFY22 was a bold precursor to further revisions expected over coming quarters, as ARPUs in India continue to be amongst the lowest in the World. Bharti believes that an ARPU of ~200‐300 is required for adequate return on invested capital and therefore ARPUs need to improve going ahead,” they said. Additionally, the telecom company is rapidly expanding and growing its associated business segments, which the analysts believe should incrementally aid earnings traction and debt reduction. “We accordingly estimate an operating earnings CAGR (FY22‐24e) of 18%, backed by subscriber gain and ARPU improvement,” the brokerage report added.

(The stock recommendations in this story are by the respective research analysts and brokerage firms. Financial Express Online does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)

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