Analysts say the carrier’s latest move is likely aimed at meeting its adjusted gross revenue (AGR) and spectrum dues totalling nearly Rs 13,000 crore coming up for payment in the first half of 2022. They added that the fund raising will further strengthen Airtel’s balance sheet, and combined with a financially strong Reliance Jio, will add to the woes of cash-strapped Vodafone Idea, who could cede revenue and subscriber market share even faster.
“We wish to inform you that a meeting of the board of directors of the company is scheduled on Sunday, August 29, 2021, to inter-alia consider various capital raising options through equity or equity linked or debt instruments or any combination there-of, as the board may deem appropriate,” Airtel said in a notice to the stock exchanges on Wednesday.
The notice came after market hours. Shares of the telco closed 1.2% lower at Rs 612.45 on the BSE Wednesday, giving it a market cap of Rs 3.36 lakh crore.
The carrier’s stock hit an all-time intra-day high of Rs 644 on August 16, on a positive outlook. Analysts said its fiscal first quarter results reflected healthy 4G additions, revenue mix improvement, highest-ever home broadband subscriber additions and healthy free cash flow (FCF) generation, as well as consistent subscriber and revenue market share gains.
Most brokerages have a ‘Buy’ rating on the stock. CLSA, for example, has a target price of Rs 730, Goldman Sachs has one of Rs 675 and Jefferies Rs 685.
Bharti Chairman Sunil Mittal in June said that Airtel, with nearly 351 million mobile phone, broadband and DTH subscribers in India, has already raised $12 billion in the past 24 months. But “…one can never say never to raising fresh capital, (though) there is nothing immediately” in the pipeline.
“Bharti’s latest fundraise plans appear to be triggered by upcoming AGR (adjusted gross revenue) and spectrum payment obligations, even though the company is profitable,” said an analyst at leading global brokerage, who did not wish to be named.
He said that there is a perception that the Airtel stock is attractively priced, and thus, the telco could do a quick fundraise via a private placement to strategic investors. “But then markets tend to be more comfortable with funding via debt instruments and are wary of equity dilutions”.
The company’s net debt increased at June-end to around Rs 1.6 lakh crore from around Rs 1.5 lakh crore in the previous quarter, and its net debt to Ebidta ratio was at around three times, deemed ‘comfortable’ by industry analysts.
Goldman Sachs estimates Airtel needs to pay Rs 4,100 crore in AGR dues by March 2022, and also has spectrum payments worth Rs 8,500 crore coming up in FY23. Besides, Airtel needs to aggressively keep investing in expanding and deepening its 4G network as it is involved in a bitter fight with rival Reliance Jio for financially struggling Vodafone Idea’s subscribers.
It added that the telco is likely to face “an annual cash shortfall of at least Rs 2,000 crore ($270 million) if tariffs stay at current levels,” in FY23.
The carrier also needs to financially prepare for the next auctions—likely in early 2022—which will involve the sale of 5G airwaves, followed by rolling out of the next gen services.
Brokerage Motilal Oswal estimates that capital expenditure required for 5G network roll out pan-India including spectrum, sites and fibre will be Rs 1.3 lakh crore-2.3 lakh crore, of which Rs 78,800 crore-Rs 1.3 lakh crore is expected for metro cities and ‘A’ circles.
The fund raising comes with the Bharti Group in the process of restructuring its digital and telecom assets, to be able to create more monetizable opportunities.
Under the new corporate structure,
will hold all digital assets, while the telecom businesses is being hived off into a newly-created unit, Airtel Ltd, which will be a wholly-owned subsidiary under the umbrella company Bharti Airtel. Airtel Payments bank and Airtel’s international and infrastructure business including Airtel Africa and Indus Towers and Nxtra will be the other two units under the umbrella company.
