Once beaten by Reliance Jio, this large telecom stock is now ‘high conviction’ pick; check target price

By: |
January 16, 2020 6:20 PM

Bharti Airtel shares, despite having been battered by the hyper intensive competition following the entry of Reliance Jio, is now a 'high conviction' 'buy' pick of a major brokerage firm.

The brokerage has maintained ‘buy’ rating with target price of Rs 575.

Bharti Airtel shares, despite having been battered by the hyper intensive competition following the entry of Reliance Jio, is now a ‘high conviction’ ‘buy’ pick of a major brokerage firm. Motilal Oswal has listed Bharti Airtel shares as ‘high conviction buy’, with up to 22 per cent upside. “The launch of Reliance Jio’s fiber-to-the-home services has had a limited impact on Bharti Airtel as the latter boasts of a strong product portfolio and has a limited price differential with the former,” Motilal Oswal said in a note.

Bharti Airtel recently announced that it has raised $3 billion through a combination of the private placement of shares and an overseas sale of convertible bonds. The Sunil Mittal-led telco on Wednesday informed the bourses that it has raised 2 billion dollars through the QIP (Qualified Institutional Placement) route and 1 billion dollars through FCCBs (Foreign Currency Convertible Bonds) to repay adjusted gross revenue (AGR) liabilities of over Rs 35,000 crore.

“Given the recent Adjusted Gross Revenue (AGR) liability which has hit the Telecom industry, Vodafone Idea’s (29 per cent market share) survival has come to a risk which could be a boon for Bharti Airtel,” Motilal Oswal said in a research note.

“We have built-in 22 per cent ARPU increase based on the recent price hike announcement. We have not built in the Rs 10-15 billion spectrum renewal cost into our models; however, Bharti could use FCF (free cash flow) to renew spectrums,” Motilal Oswal said.

The brokerage has maintained ‘buy’ rating with a target price of Rs 575. The shares of Bharti Airtel ended at Rs 474.05 apiece, up 1.35 per cent on BSE on Thursday. It may be noted that the market capitalisation of Bharti Airtel stands at Rs 2,39,700 crore and that of Vodafone Idea at Rs 17,200 crore. Out of the total dues of Bharti Airtel of around Rs 35,586 crore, the report says, Rs 21,450 crore would be repaid via the fundraising program (both equity and debt), while the balance has to be repaid through additional debt. This will increase the net debt to Rs 1,08,000 crore, which is likely to reduce in FY21 given healthy FCF of Rs 12,000 crore.

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