Brokerages stay bullish on Bharti Airtel post Q4 nos, see up to 33% upside

Shares of Bharti Airtel, on Tuesday, slipped as much as 2.2 per cent to Rs 537.10 on the BSE, in an otherwise firm market after the telecom operator announced its March quarter results. At 10:10 AM, the stock was trading 2 per cent lower at Rs 538.55 on the BSE. In comparison, the benchmark S&P BSE Sensex traded 0.9 per cent higher.

Bharti Airtel, on Monday, reported a consolidated net profit of Rs 759 crore in the fourth quarter of 2020-21, after provisioning for the adjusted gross revenue (AGR) payment due to the central government. The company’s revenues stood at Rs 25,747 crore, up 17.6 per cent YoY on a comparable basis. READ MORE

The telecom operator reported a broadly in-line set of results with a positive surprise on the subscriber addition front offset by a marginally weaker average revenue per user (ARPU). Following the results, most brokerages retained their bullish stance on the stock, with either ‘buy’ or ‘hold’ calls. According to UBS, the impact of the second wave of Covid-19 on subscriber additions and ARPUs will be the key monitorables, going ahead.

Here’s what top brokerages said about Bharti Airtel post its Q4 numbers:

Goldman Sachs

Recommendation: Buy

Target price: Rs 665 (21% upside)

Bharti reported a broadly in-line set of results with higher-than-expected subscriber addition offset by a marginally weaker ARPU. However, Bharti continues to outperform peers, with the company’s revenue market share higher by 110 basis points (bps) and 390 bps over the last one and five quarters, respectively. While we expect short-term headwinds to earnings due to Covid-19 (moderation in subscriber adds) and competition (ARPU pressure), we forecast Bharti’s wireless business to deliver over 20 per cent revenue and Ebitda growth for the next two years.

We marginally lower our FY2022E-24E earnings before interest, tax, depreciation, and ammortisation (Ebitda) estimates for Bharti (by up to 2 per cent), and reiterate our ‘Buy’ rating on the stock with a revised 12-month target price of Rs 665 (from Rs 670). We think the market is under-appreciating a ‘market share re-allocation’ scenario, and we continue to believe one of the two outcomes – tariffs moving up, or market share re-allocation, is highly likely in the near term.

CLSA

Recommendation: Buy

Target price: Rs 730 (33% upside)

Bharti’s gearing including leases, spectrum liabilites, and AGR is comfortable at three times (2.5 times ex-AGR). Bharti’s application in the Supreme Court on errors in Department of Telecom AGR demand is awaiting adjudication. The company’s FY21 Capex is $3.3 billion and free cash flow doubled to $3 billion. In Q4FY21, Bharti added 8,300 towers and acquired 355 MHz spectrum for $2.6 billion (Rs 18,700 crore) in the March 2021 auction. We realign our estimates and, led by Bharti’s 4G penetration at 56 per cent of its own India mobile subscribers, forecast a 17 per cent CAGR in its consolidated Ebitda by FY23. We reiterate our ‘BUY’ rating and an SOTP-based Rs 730 target price.

UBS

Recommendation: Buy

Target price: Rs 665 (21% upside)

Bharti delivered another healthy quarter. It added 13.4 million subscribers in Q4. In comparison, Jio added 15.4 million during the quarter. It also added 274,000 fixed broadband (FBB) subs during the quarter, the highest ever quarterly addition, although this was offset by an ARPU decline from Rs 705 to Rs 684. Despite that, FBB revenue was up 5 per cent QoQ, slightly ahead of our estimates. The Digital TV segment witnessed 2.8 per cent revenue decline in Q4, whereas the Enterprise segment reported a 2.2 per cent QoQ growth.

Overall, a healthy set of results, with Bharti outperforming Jio on most metrics. However, the impact of the second wave of Covid-19 on subscriber additions and ARPUs will be a key monitorable going ahead. We believe Bharti is well placed in the sector and maintain ‘Buy’ with a target of Rs 665.

Jefferies

Recommendation: Hold

Target price: Rs 590 (7% upside)

Given Bharti’s strong subscriber traction, we raise our subscriber estimates 4 per cent. We cut our ARPU estimates by 4-5 per cent to factor the Q4 miss, and we are concerned about declining ARPUs despite strong 4G and postpaid subscriber additions. Despite a cut in India mobile, we raise our consolidated estimates by 1-3 per cent as we raise our estimates for Homes, Airtel Business, and Airtel Africa segments. Over FY21-23, we now expect Bharti Airtel to deliver 13 per cent CAGR in revenues and 18 per cent CAGR in Ebitda assuming 10 per cent tariff hikes in Q4FY22 and Q4FY23. Maintain ‘Hold’ with target of Rs 590/share.