While earnings estimates for the telecom operator have been trimmed marginally, analysts are optimistic on the market share gains and set price targets of up to Rs 750, which suggest up to 39 per cent potential upside for the stock.
Among global brokerages, Citi has maintained a ‘buy’ rating on the stock with a price target of Rs 685, as it expects the firm to keep gaining market share. Noting that the stock has remained rangebound over the past few months, it said valuations are reasonable for the stock.
Macquarie, which has an ‘outperform’ rating on the stock, found the March quarter momentum ‘good’. It said the impact on Arpu was largely on account of removal of IUC. It finds the stock worthy of a price target of Rs 747, based on 8.1 times FY23 EV/Ebitda.
The scrip fell 2.26 per cent to hit a low of Rs 537 in an otherwise strong session for Dalal Street on Tuesday. It had dropped 2 per cent on Monday, and has been falling for five straight sessions now.
Airtel on Monday reported a 11.1 per cent quarter-on-quarter fall in its consolidated net profit to Rs 759.20 crore, which was sharply below analysts’ estimates. The miss on the bottom line was despite the company reporting an exceptional gain of Rs 440 crore for the quarter and a near-doubling of other income to Rs 83.9 crore.
Consolidated revenue from operations fell 3 per cent on-quarter to Rs 25,747.3 crore.
The company’s average revenue per user (ARPU) in India plummeted nearly 13 per cent in the quarter to Rs 145 per user from a three-year high of Rs 166 in the previous quarter. The decline in ARPU was largely on account of the removal of interconnect usage charges from January 1.
The telecom operator’s customer base in India in the quarter grew 4.2 per cent on a quarter-on-quarter basis to 350.3 million.
Goldman Sachs said the market is under-appreciating a ‘market share re-allocation’ scenario and believes that one of the two outcomes – tariffs moving up or market share re-allocation – is highly likely in the near term. The brokerage has maintained a ‘buy’ rating on the stock with a price target of Rs 665.
“Bharti reported a broadly in-line set of results with higher-than-expected subscriber addition, but that was offset by a marginally weaker Arpu. However, it continues to outperform peers, with the company’s revenue market share higher by 390 bps over the last five quarters. While we expect short-term headwinds to earnings due to Covid-19 (moderation in subscriber additions) and competition, we forecast Bharti’s wireless business to deliver 20 per cent plus revenue and Ebitda growth for the next two years,” the brokerage said.
CLSA, too, is positive on the stock with a target of Rs 730. For this brokerage, March quarter revenues were ahead of estimates. It noted that India sales, net of IUC, were up 4 per cent sequentially. “Bharti’s 4G penetration of 56 per cent of its own subscribers assure growth,” it said.
The company management will host a conference call on Tuesday at 14:30 IST. UBS said it would be looking at the management commentary on the potential impact of the second wave of Covid-19, overall outlook for mobile competition as well as topics such as floor tariffs and 5G spectrum auctions. It said it would also focus on ‘flattening Arpus’ and potential impact of recent freebies offered by all the telcos as part of pandemic relief.
“Overall, a healthy set of results, with Bharti outperforming Jio on most metrics. However, the impact of the second wave of Covid-19 on subscriber additions and ARPUs will be a key monitorable going ahead. We recently analysed the sector in detail, and we believe Bharti is well placed in the sector. We maintain a ‘buy’ rating with a price target of Rs 665,” UBS said.
“Bharti’s gearing including leases, spectrum liabilities and adjusted gross revenue (AGR) is comfortable at 3 times (2.5 times ex-AGR). Bharti’s application in the SC on errors in DoT AGR demand is awaiting adjudication. Bharti’s FY21 Capex is $3.3 billion and free cash flow doubled to $3 billion,” CLSA cited while forecasting a 17 per cent growth in consolidated Ebitda by FY23.
