Bharti Airtel: Rise in ARPU, data traffic make brokerages say ‘buy’ shares; these risks may halt upside

During the quarter under review, the data traffic growth of Bharti Airtel was surged by around 73 per cent on-year even as 4G net additions slowed down to 2 million caused by supply chain shocks in the device ecosystem

Bharti Airtel share price gained over 1 per cent to hit day’s high of Rs 559 apiece in an otherwise weak market on Friday. Even as this large-cap telecom company reported a consolidated net loss of Rs 15,933 crore in April-June quarter, its mobile services continued to recover with average revenue per user (ARPU) rising for the fifth consecutive quarter. The company reported a net loss of Rs 2,866 crore a year ago. Research and brokerage firms have ‘buy’ rating to the stock with a potential upside of nearly 30 per cent post April-June quarter earnings. “Bharti Airtel’s 1QFY21 performance was better than expectations despite the COVID-19 led lockdown,” said Motilal Oswal Financial Services in a report. The brokerage firm said that its higher multiple for the India wireless business captured expected gains from any potential ARPU increase, growing market share and possible government relief. The firm maintained a ‘buy’ rating with 27 per cent upside in a price target of Rs 700 apiece. 

Bharti Airtel share price hit its 52-week high of Rs 611.70 apiece in May this year. With today’s gain in the share price, Bharti Airtel’s total market capitalisation stood at Rs 3,03,247.16 crore. Company’s CEO Gopal Vittal said in a statement that Bharti Airtel has been going through an unprecedented crisis caused by the COVID-19 pandemic. During the quarter under review, the data traffic growth surged by around 73 per cent on-year even as 4G net additions slowed down to 2 million caused by supply chain shocks in the device ecosystem. 

Research and brokerage firm Emkay Global Financial Services has retained its buy rating to the stock with a target price of Rs 684 apiece, an upside of 23.6 per cent from yesterday’s close. “Bharti continues to deliver a strong performance, with lower-than-estimated subscriber loss as well as a rise in 4G subscribers, albeit at a slower pace,” the brokerage firm said. Emkay Global expects the company to benefit from subscriber market share loss at the hands of Vodafone Idea, due to network challenges on account of its stressed financial situation. Bharti Airtel CEO indicated another round of tariff hikes during the post-results investor call. However, the key risks to the brokerage call include (1) any adverse regulatory regime; 2) lower-than-expected tariff hike; 3) weak macro-environment, along with currency depreciation in the African markets; 4) additional bullet payment towards AGR penalty would impact liquidity and 5) earlier than anticipated 5G capex spends.

Bharti Airtel’s net loss, before exceptional items, for the April-June quarter of the current fiscal stood at Rs 436 crore, compared with Rs 471 crore in the March quarter of the last fiscal. Brokerage firm Sharekhan has given a buy rating. Bharti Airtel will have to jump 28.42 per cent to touch the target price of Rs 710 apiece. The company has provisioned incremental Rs 107 billion towards AGR with a total provision of Rs 470 billion-plus which should cover the total demand of AGR dues by DOT (including interest charges). “Further, the recent series of fund-raising in the last one year and potential asset sale alleviates concerns on liquidity. Though the next hearing by the Supreme Court on the AGR case is scheduled on August 10, we believe that staggered payments would be allowed for the telcos,” Sharekhan said.

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