After surging 10 percent in September, and nearly 16 percent in 2022 year-to-date (YTD), domestic brokerage house Axis Securities has chosen telecom major Bharti Airtel as its top 'pick of the week'.
The brokerage has a BUY rating on the stock with a near-term target price of ₹875, implying an upside of another 10 percent from the current market price. Axis is bullish on the stock on the back of prospects of rising in data consumption, strong 4G conversions and healthy revenue growth.
Bharti Airtel is India’s one of the leading telecom services provider having large geographical presence. It has a strong presence in Africa. Airtel has a strong diversified service portfolio including digital platforms, DTH fibre to home, etc., with a strong presence across Indian geography.
The stock jumped 10 percent in September but has lost around 1 percent in October so far. In the last 1 year, it has risen nearly 14 percent while in the past 4 years, the stock has soared nearly 3 times, up 195 percent.
In the June quarter, the telecom firm reported a 466.8 percent YoY jump in its Q1 profit at ₹1,607 crore, mainly on account of hike in tariffs, against ₹284 crore in the year-ago period. Consolidated revenue from operations of Bharti Airtel increased by about 22 percent to ₹32,805 crore during the reported quarter from ₹26,854 crore earlier. The hike in mobile service tariffs during the reported quarter led to an increase of 25.4 percent in the average revenue per user (ARPU) of Bharti Airtel in India to ₹183 from ₹146 a year ago.
"Our enterprise and homes business has strong momentum and delivered strong double-digit growth, improving the diversity of the overall portfolio. Airtel's strategy of winning with quality customers continues to yield good results with an industry-beating ARPU at ₹183," Bharti Airtel MD and CEO Gopal Vittal said in a statement.
Bharti Airtel's total customer base grew by 4.7 percent on a YoY basis to 49.69 crore, with India accounting for 36.24 crore subscribers. The mobile services revenue of Bharti Airtel in India grew 27 percent on a year-on-year (YoY) basis to ₹18,220 crore from ₹14,305.6 crore.
Investment Rationale
Data consumption in India likely to increase – As per the brokerage, the Covid-19 outbreak proved as a boon for the telecom and automation sectors. India's Mobile Data Consumption Market is mainly driven by an increasing number of wireless data subscribers, it added.
"Percentage of the number of wireless data subscribers over total wireless subscribers increased from 36.32 percent at the year ending 2017 to 62.35 percent at the year ending 2022. The demand for the digital platform and mobile-based usage has gone up multiple folds in India," stated Axis. While rural penetration was a big laggard in data consumption but it is likely to increase exponentially in the forthcoming quarters aided by the digital revolution, noted the brokerage. It further informed that the India Mobile Data Consumption Market size is projected to reach $14.34 billion by the end of the forecast period at a CAGR of 14.7 percent.
Strong 4G conversions and strong digital additions - Axis Securities stated that the company continued a strong share of 4G net ads in the market as the 4G customer base grew by 4.5 million QoQ to reach 195.5 million (This forms 63 percent of the overall customer base now). In the Homes Business as well, the company witnessed strong customer addition of 1.4 million in Q1FY23, it added.
Healthy revenue growth - According to Axis, Airtel reported strong growth in Q1FY23 and has posted consistent growth across the overall portfolio, mainly led by enterprise and Home Business. The company posted revenue of ₹32,805 crore for the June quarter, up 4.1 percent and 22.2 percent on a QoQ and YoY basis, respectively. Its consolidated EBITDA Margin remained flattish at 50.6 percent on account of its efficient execution, superior customer mix, and strong customer additions in 4G, said Axis.
Going ahead, in the September quarter, brokerages see multifold growth in Airtel. Brokerage house Motilal Oswal expects Bharti Airtel’s earnings to rise almost 470 percent YoY to ₹1,500 crore, while, ICICI Securities sees Bharti Airtel’s earnings jumping nearly 645 percent YoY to ₹1,926.80 crore, but down 4 percent sequentially.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
