scorecardresearchBharti Airtel up over 2% as Prabhudas Lilldher initiates coverage with a buy; Here's what the brokerage says

Bharti Airtel up over 2% as Prabhudas Lilldher initiates coverage with a buy; Here's what the brokerage says

Updated: 06 Sep 2022, 12:01 PM IST
TL;DR.
  • The brokerage firm said it believes Bharti is a compelling play on multiple growth opportunities in the emerging digital economy.
Bharti’s customer-focused strategies along with digital investments have helped drive revenue and subscriber marketshare.

Bharti’s customer-focused strategies along with digital investments have helped drive revenue and subscriber marketshare.

Bharti Airtel moved up nearly three percent on the NSE on Tuesday. The stock was trading at 761.65 per share, at 11.46 am, up 2.82%. 

Brokerage firm Prabhudas Lilladher has initiated coverage on the stock of Bharti Airtel with a ‘buy’ call, pegging the target price of 1,032.

The brokerage firm said it believes Bharti is a compelling play on multiple growth opportunities in the emerging digital economy given its strong brand presence across mobile, enterprise business, home services, DTH and Africa business.

Here's what the brokerage says about the stock

India’s telecom sector's consolidation to drive growth

The brokerage firm believes India’s telecom sector is expected to enter into a strong growth phase over FY22-25E, on the back of industry consolidation and increasing discipline on ARPU.

"Led by supportive government policies, we expect the sector’s wireless revenue to increase at 17.7% CAGR over

FY22-25E, aided by 17.7% CAGR in ARPU from 134 to 219. We believe that Jio and Bharti will control 72% and 84% market share of the sector’s subscribers and revenue in FY25E against FY22 levels of 68% and 78% respectively," the brokerage firm said.

Bharti’s has multiple growth avenues

Bharti’s customer-focused strategies along with digital investments have helped drive revenue and subscriber market share.

Bharti had the highest Adjusted Gross Revenue (AGR) in Q1FY23 and the last one/two-year growth was 25.1%/30.3% versus Jio’s 20.6%/18.7%.

Led by ARPU and customer addition, EBIDTA of the Indian/Africa mobile business is expected to grow at a nearly 23.8%/13.4% CAGR over FY22-25E.

"We expect strong 33.7% CAGR in-home services, including fixed line and broadband services. Additionally, Airtel payment bank - one of the few profitable fintech banks (with reported PAT of 104mn and Gross Merchandise Value (GMV) of 1.3trn in FY22) remains well placed to capitalize on rising digital transactions with nearly 129.4mn customer base," Prabhudas Lilladher said.

5G the next frontier

5G in India is anticipated to be a 580-1300bn opportunity by CY27 across connectivity and enterprise market. Bharti’s 5G plan will ride on the use of existing 4G infrastructure along with 3.5GHz of mid-band spectrum (acquired recently).

This will result in lower operating costs and better utilization of existing assets, as the 5G ecosystem user case develops. Also, Bharti’s leadership position in the enterprise segment with 32% revenue market share will ride on expanding market size i.e.about 2 times to 700bn by 2025 given its presence in IoT, CPaaS, data centre etc.

Strong balance sheet (BS) to drive growth

Bharti has raised nearly 1trn through various financial instruments and stake sales in businesses (Airtel Africa and tower assets), which along with improving fundamentals has cut Bharti’s Net debt/EBIDTA (ex-lease) to 0.5x for FY25E from 2.1x in FY22.

"We expect ROE to improve to about 22.1% for FY25E from 6.9% in FY22E. We expect FCF of nearly 398bn for FY25E with a reduction in net debt to nearly 548bn," Prabhudas Lilladher said.

Disclaimer: The views and recommendations given in this article are of the broking firm. These do not represent the views of MintGenie.

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First Published: 06 Sep 2022, 12:01 PM IST