Bharti Airtel Q3 Review: Brokerages retain ‘buy’ calls as profit jumps 92%; stock still falls – here's why

Telecom major Bharti Airtel reported robust earnings for the December quarter of FY23 (Q3FY23). The telco posted a 92 percent year-on-year (YoY) rise in its consolidated net profit to ₹1,588 crore aided by better realisation, strong 4G customer additions and overall strong growth across businesses. Its net profit in the year-ago period stood at ₹830 crore.

However, despite the strong growth, the profit missed Street expectations of around a 155 percent rise in its net profit in the quarter under review.

Also, the company's net profit fell 26 percent sequentially due to higher operating expenses and an exceptional charge of ₹669 crore.

Its total revenue rose 20 percent to ₹35,804 crore versus ₹29,867 crore reported in the corresponding quarter last year. Sequentially, the revenue was up 4 percent. The rise in revenue was 'backed by strong and consistent performance delivery across the portfolio', the company said in a statement.

Consolidated EBITDA for the firm also advanced 25 percent YoY to ₹18,601 crore during the quarter. It was up 5 percent on-quarter.

The average revenue per user (ARPU) for the telco grew 18.4 percent YoY to ₹193 and 1.5 percent sequentially. Its operating profit rose 24.8 percent YoY to ₹18,601 crore. Meanwhile, its operating margin increased 2.1 percentage points YoY to 52 percent as against 49.9 percent in the corresponding quarter last year and 51.3 percent in the previous quarter.

The management reiterated that ARPU needs to go to INR 300 for a respectable RoCE (vs below 9 percent at present) but said it can’t hike tariffs on its own as it will depend on how the competition responds.

Let's now take a look at what brokerages have to say about the telecom major post its December quarter earnings. 

Most brokerages retained their ‘buy’ calls on Airtel. While they expect earnings to be soft in the near term, they believe in Airtel's long-term growth story.

Motilal Oswal

The brokerage has a ‘buy’ call on the stock with a target price of ₹985, implying an upside of 27 percent. As per MOSL, in the near term, the stock should see an overhang with moderate FCF (free cash flow) generation, due to softening earnings. This was a result of slower 4G additions, limited tariff hikes and increased capex intensity towards 5G rollout and rural coverage, it noted. However, it forecasted that over the next two years, the company is well poised to gain from sector tailwinds, with an EBITDA CAGR of 13 percent over FY23-25E, driven by a combination of market share gains, improved ARPU, led by premiumization of customers and tariff hikes and non-wireless segments.

It maintains EBITDA estimates, led by a healthy 14 percent/13 percent growth in India mobile/Africa growth.

"We value BHARTI on an FY25E basis, assigning an EV/EBITDA ratio of 11/5 to the India Mobile/Africa business, and arriving at a SoTP-based TP of INR985. We reiterate our Buy rating on the stock. Near-term valuation multiples have remained under pressure, but long-term growth should garner better valuations," it said.

Prabhudas Lilladher

The brokerage has a ‘buy’ call on the stock with a target price of ₹1,009, implying an upside of 30 percent. Post the Q3 earnings, the brokerage lowered its FY23, FY24 and FY25E earnings estimates by 15 percent, 23 percent and 2 percent, respectively. It also lowered ARPU growth by 3-9 percent, given delays in pricing action. Bharti reported strong operational results led by strong performance across businesses, noted PL.

It stated that it remains structurally positive on Indian telecom and Bharti given the consolidation in the sector which may lead to regular tariff hikes. “Maintain ‘BUY’ at SOTP-based PT of ₹1,009 ( ₹1,039 earlier) as we increase lease debt, but increase India mobile multiple to 8.5x (7.8x earlier),” said PL.

JM Financial

The brokerage has a ‘buy’ call on Bharti Airtel with a target of ₹940, indicating an upside of 21 percent. The brokerage believes India wireless business tariff hikes are likely to be more frequent, going forward, given the industry requires higher ARPU to justify significant capex for 5G rollout. 

Bharti is the biggest beneficiary of higher tariffs given the sticky and premium quality of its subs, ensuring that tariff hikes flow through to ARPU, it noted. JM expects Bharti’s India wireless ARPU to grow at a CAGR of 10 percent to ₹285 in FY28 (vs ₹193 in Q3FY23); hence, it estimates a consolidated EBITDA CAGR of 15 percent over FY22-28.

ICICI Securities

According to the brokerage, Airtel continues to report a healthy performance on the Indian wireless business front with resilient and industry-leading KPIs in terms of India post-paid/4G subscribers, ARPUs and margins. Management commentary on overall growth drivers would be the key monitorable ahead, the brokerage firm said in a note. “We remain constructive on Airtel given the disproportionate benefits of market consolidation in the telecom sector,” it said.

BNP Paribas

For CY23, BNP Paribas expects double-digit revenue growth to continue for the industry, with the consolidation trend continuing. Analysts believe operators would raise tariffs for 4G services and also look to lift ARPU from 5G subscribers by offering them a larger data quota at a lower cost/GB. Airtel appears well positioned to benefit from this, the brokerage firm said.

Stock price trend

The stock fell around 2 percent in early deals after it announced its Q3 results, which missed analyst estimates.

In the last 1 year, the stock has added over 9 percent versus a 2 percent rise in the benchmark Nifty. However, in the past three months, Airtel has underperformed the market, falling 6 percent, as compared to a 1 percent decline in Nifty.

Meanwhile, in the past six months, the stock advanced 10 percent. In Feb so far, the stock is down 1 percent. It has corrected 13 percent from its record high level of ₹877, hit on November 25, 2022.

30 analysts polled by MintGenie on an average have a ‘buy’ call on the stock.