Bharti Airtel, Indus Towers and Sterlite Technologies shares are among CLSA’s top stock picks in the telecom sector for this year. The brokerage firm has raised the target prices on Bharti Airtel, Vodafone Idea and Indus Towers stocks, saying that the telecom companies are set to gain from multiple growth triggers this year. India’s telecom sector is set to witness strong growth in 2022, led by rising Average revenue per user (ARPU), increased 4G penetration, and transition to 5G, said CLSA. “2022 sector revenues would grow again, with prepaid tariff hikes by Bharti Airtel, Vodafone Idea, and Reliance Jio and 4G mobile data penetration reaching 83% by FY24CL,” CLSA said.
Top Telecom Stocks to Buy in 2022
Bharti Airtel – Buy
Airtel is CLSA’s top pick in the telecom sector. “Bharti’s stock in 2021 was up 35%, outperforming the market by 12% with creditable market-share performance. In 2021 Bharti added 3ppt revenue market share to 34% despite further 2ppt market-share gain by RJio,” CLSA analysts said. They added that Bharti’s balance sheet is strong, free cash flow positive with gearing comfortable at 3x Ebitda. “Meanwhile, stock valuation is compelling at 7.5x EV/Ebitda for FY23CL (13% discount to 5-yr avg).” CLSA has a target of Rs 910 per share on Airtel, implying 28% upside.
Indus Towers – Buy
The stock underperformed in 2021, gaining merely 3%. “Likely Indus Tower stock underperformed with continuing high telco ownership of 70% and delays in Vodafone Idea fund-raising,” CLSA said. “With improving long-term growth prospects and stock trading at compelling 5.5x EV/Ebitda for FY23CL, with huge 70% discount to global tower peers, we retain BUY,” they added. The target price of Rs 360 per share suggests a 37% upside.
Sterlite Technologies – Buy
The stock was an outperformer in 2021, gaining 47% during the year. “Sterlite Technologies is a beneficiary of the acceleration in digital networks worldwide post Covid-19,” CLSA said. “Also, Sterlite Technologies’s net debt has continued to increase to Rs 28 billion, up ~30% on-year, although management has stated that debt has peaked and it plans to cut gearing to 0.5x net debt to equity from 1.3x,” CLSA added. The brokerage firm has, however, cut the target price to Rs 363 per share, implying an upside of 31%.
Vodafone Idea – Underperform
CLSA has an underperform rating on Vodafone Idea’s stock. The brokerage firm believes the company has averted a financial crisis with AGR dues payment delayed now. CLSA has a target price of Rs 16 on the stock, hinting at a marginal upside.
What To Expect For Telecom Sector in 2022
In November of 2021, telcos announced tariff hikes in the range of 20-25% — a move that will increase revenues. The sector saw 15% on-year revenue growth in the previous year helped by tariff hikes and a relief package that provided a breather for telcos on the AGR front. Apart from this, 4G penetration is also expected to grow. CLSA said that telecom data subscribers are likely to reach 921 million by the Financial year 2023-24 while forecasting 4G penetration to reach 83%. In terms of revenue, CLSA estimated growth to be at a strong 13% CAGR during the same time period.
Further, in 2022 5G is also expected to play a bigger role with spectrum pricing and auctions. Along with 5G, another key catalyst for 2022, according to CLSA would be a reduced burden of AGR dues. Telecom operators have filed review petitions on AGR dues and if the court rules in favor of telcos it will amount to $4.2 billion savings for Bharti Airtel and higher $5 billion for Vodafone Idea. CLSA also expects Reliance Jio’s IPO in 2022, which has been termed as a potential sector valuation catalyst.