Bharti Airtel’s share price has gained nearly 48% since the middle of last October, to now sit at Rs 588 apiece. The telecom company’s stock has outperformed Vodafone Idea, which has had its bouts with volatility but is still up 40% during the same period. Bharti Airtel’s stock performance is also better than Reliance Industries’ which owns Jio — Airtel’s closest competitor. Now, even after having charted a significant up-move, analysts are not giving up on Bharti Airtel. Even the most modest price targets for the stock expect it to jump nearly 20% from current levels.
Strong quarterly performance, beating peers
In the fiscal third quarter, Bharti Airtel bounced back into the black reporting a net profit of Rs 854 crore against a net loss in the same period last year. The telco said its average revenue per user (ARPU) stood at Rs 166, against Jio’s Rs 151 during the same period. “The strong usage metrics and 4G additions, in our view, re-affirms the superior positioning and strong execution capabilities of Bharti,” said JM Financial earlier this month.
Latest subscriber data released by the regulator TRAI on Thursday showed that the subscriber base in the country fell, but Bharti Airtel and Reliance Jio were still seen gaining customers. Active subscribers for Bharti Airtel reached 32.9 crore at the end of last year to control 33.7% of the market share — the largest among peers.
Looks ahead of telecom biz
Recently, Bharti Airtel announced plans to buy back 20% stake in its DTH arm from Warburg Pincus. This transaction would make Bharti Telemedia, the DTH business, a wholly-owned subsidiary of the telco but will cost Rs 3,126 crore. Nearly Rs 1,000 crore of this would be in cash and the balance through equity shares of Bharti at Rs 600 per share.
The transaction is at a 28% premium to its sale in 2017. “This is equivalent to a loan at 8.5% interest, which we believe is not an expensive trade,” said analysts at Motilal Oswal. The management has already said it sees positives ahead for the DTH business. However, it will increase the net debt of Bharti Airtel by Rs 940 crore. “With high net debt, we would prefer to see more signs of deleveraging as it could help rerate valuations,” Motilal Oswal added.
Where’s the stock heading?
The sharp up-move by Bharti Airtel’s stock price comes after Bharti Airtel’s stock fell 33% between May and October last year while both its peers, as well as benchmark indices zoomed ahead in the bull market. Kotak Securities said it likes the firm’s approach in shaping up its non-telecom digital service offerings aligned with its homes and enterprise businesses. Kotak Securities have a fair value of Rs 710 per share on the stock with a ‘Buy’ rating. Motilal Oswal sees some positives in the DTH business while reiterating its ‘Buy’ with Rs 720 target price.
Post the quarterly results Ambit Capital said that it sees Bharti Airtel as a ‘Buy and Hold investment’. According to them, integrated telco strategy of deep presence across B2B, homes and DTH, alongside its wireless telco operations will help Airtel. Ambit has a target price of Rs 803 apiece on the stock.
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