Bharti Airtel Shares Rise More Than 32% in a Year; Analysts Predict a Further Rally of 34%



Bharti Airtel Stock Price: Over the past year, the price of Bharti Airtel shares has increased by 32%. The telecom stock is anticipated to increase by another 34% as the sector's robust revenue and Ebitda growth are being driven by tariff increases. Motilal Oswal Financial Services experts predict that three factors will help the telecom business grow: an improvement in the 4G mix, market share gains from VIL, and ongoing rate increases. These controls and a 65 percent additional marginBharti should experience an 18% EBITDA CAGR over the period FY22–FE," the firm added. It rates the company as a "buy," with a target price of Rs 910 based on SOTP and an expected FY24 EV/EBITDA of 11x for the India Mobile business and 5x for the Africa business.


Although Bharti's operational performance has been good over the past couple of years, it has trailed in FCF generation and deleveraging, which has been a major worry for the company, according to Motilal Oswal. FCF is a crucial component of the telecom industry since constant technological advancement keeps Capex's intensity high. However, despite the planned expenditures in 5G, we think Bharti is experiencing a decadal shift in its ability to generate FCF, which might result in a healthy deleveraging.


Huge FCF Opportunity


The domestic brokerage business study claims that Bharti Airtel is beginning a period of rapid FCF development. The company's EBITDA increased by Rs 318 billion over the past three years (FY19–FY22), more than two times the average CAPEX (excluding Spectrum) of Rs 233 billion (flat over the period). This resulted in a significant FCF. However, the acquisition of Indus and DTH stakes, AGR payments, liabilities, and other factors have resulted in limited FCF and deleveraging. Motilal Oswal analysts predict that Bharti would earn FCF (post-interest) of Rs 251 billion/Rs 368 billion in FY23 and FY24, respectively, or 22% and 47% of its net debt (post-Ind-AS 116).


Growth Drivers: 4G mix improvement, market share gains, tariff hikes


Analysts claimed that the recent five-year shift in the market structure had allayed a significant historical worry from the previous decade, when profitability was weak and Capex continued to climb, resulting in high debt. The current telecom sector consolidation has resulted in repeated rounds of rate increases, totaling >50%, which translated into a 39% increase in ARPU for Airtel during ThroughoutFY19–22 and gains in market share of almost 5.3%. "We identify three growth drivers for Bharti: an improved 4G mix, market share gains from Vodafone Idea (VIL), and ongoing pricing increases. Over the course of FY22–24E, these levers should help Bharti achieve an 18% EBITDA CAGR, according to the report's analysts.


Bharti Airtel Ltd., a large cap business with a market cap of Rs 3,96,514.56 Crore and engaged in the telecommunications sector, was founded in 1995.

Financials


The company recorded a Consolidated Total Income of Rs 31,518.90 Crore for the three months ended March 31, 2022, up 4.8 percent from the previous quarter's Total Income of Rs 30,063.70 Crore and up 22.02 percent from the same quarter last year's Total Income of Rs 25,831.20 Crore. In the most recent quarter, the company reported a net profit after tax of Rs. 3,001.40 crores.

With Jio needing to start focusing on profitability (and not just on subscriber additions) as it gets ready for its potential IPO in the next 1-2 years, JM Financials stated in an earlier report that it believes tariff increases are likely to be more frequent going forward. Jio will also likely be more willing to participate in tariff increases. Given the sticky nature and high quality of its subscribers, the brokerage believes that in this scenario the sector might experience a large re-rating and that Bharti could benefit significantly from that, ensuring that tariff increases trickle through to ARPUs.


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