Telecom major Bharti Airtel’s share price remained composed even as the markets were deep in the red on Friday. The fifty-share NSE Nifty 50 was trading at 17,385.60 points, down 1.16%, while the thirty-share BSE Sensex was down 1.25% at 59056.92 points at 03:01 PM on Friday. Meanwhile, Airtel’s shares were trading at ₹ 774.00 apiece, as global brokerage Jefferies turned bullish on the stock.
Jefferies has a buy rating on the stock and it has upgraded its target price to ₹ 900.00. This translates to an upside of 16.28% as compared to its current share price. It believes that market share gains for the telco are likely to accelerate amid 5G rollouts.
Market share gains among 4G subscribers, hikes in voice tariffs and improving tariff outlook due to the government’s support for Vodafone Idea are among the key factors that could lead to an upside, according to the brokerage. It added that these factors can help the company drive 13% growth in its mobile ARPUs (Average Revenue Per User) over FY 23-25.
Bharti Airtel’s market share gains among active 4G users are evident from a 60% increase in its market share in 2HCY22 (second half of current year 22) against its overall market share of 30%. This gain has helped the company to improve its subscriber mix and raise its daily ARPU by 4.4% over 2HCY22. Airtel has another 107m voice subscribers that are yet to upgrade to data, indicating that Airtel’s revenue will likely rise by 4-5% annually due to the improvement in the subscriber mix.
“While we cut our estimates by 1-4% to factor tariff hike delays, we upgrade Bharti Airtel shares’ rating to BUY as, after a 13% fall since November 2022, the stock offers 16% upside potential to our rolled forward target price of Rs 900 (earlier Rs 850). We cut our revenue/EBITDA estimates by 1-4% to factor the change in tariff assumptions and expect 16-17% Cagr in Bharti Airtel’s consolidated revenue/Ebitda over FY23-25,” the brokerage stated in a note. A delayed tariff hike is a key risk to Jefferies’ recommendation.
Jefferies added that Vodafone Idea may potentially be able to secure incremental funding given the government’s support, but it is unlikely that it will match Bharti Airtel or Reliance Jio’s capex plans of spending $9/25 bn over the next three years.
The brokerage expects Vodafone Idea to likely witness accelerated market share losses as 5G becomes mainstream. It said that the initial signs are already visible in recent market share trends where Vodafone Idea has lost 3 ppt market share in metro circles in the October to December quarter of 2022. Jefferies said that Airtel’s fair value could rise by ₹ 120 per share in a duopoly.
Bharti Airtel is a large-cap blue-chip stock with a market capitalization of ₹ 4,45,330 crores. It has a return on equity of 6.78% and a high debt-to-equity ratio of 3.00. However, companies in a capital-intensive industry like the telecom industry, companies tend to have a high debt-to-equity ratio. Airtel’s shares were trading at a price-to-earnings ratio of 60.00, which is significantly higher than the industry average of 14.21, indicating that its shares might be overvalued, or that investors are willing to pay a higher price for the company’s future earnings.
Written by Simran Bafna
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