Bharti Airtel declines 2% as board to consider fund raising

The board will meet on August 29 to consider and approve raising funds via equity, equity-linked or debt instruments or a combination

Shares of Bharti Airtel were down 4.2 per cent to Rs 587 on the BSE on Thursday led by profit-booking as well as concerns of additional share-supply after the telecom services major announced fund-raising plans.

Airtel stock has corrected almost 9 per cent from its record level of Rs 644 touched on August 16, 2021. The correction follows an over 18 per cent rally from Rs 525 levels in July. But despite the correction, it has outperformed the market in the past one month, gaining 7.9 per cent, as compared to a 5.9 per cent rise in the S&P BSE Sensex. Improving business prospects are a key reason for Airtel stock’s recent outperformance.

Bharti Airtel, on Wednesday after market hours, informed the exchanges that its board will meet on August 29 (Sunday) to consider and approve raising funds via equity, equity-linked or debt instruments or a combination thereof including through rights issue, qualified institutions placement, preferential issue, convertible instruments issued domestically or foreign currency convertible bonds, or warrants on a preferential or marketed basis, or straight long-dated debt in rupee or foreign currency or any other mode.

"Bharti continues to showcase its strength - even in an otherwise muted quarter - with healthy 4G adds, revenue mix improvement, highest-ever home broadband subscriber adds and healthy free cash flow (FCF) generation. Although the recent tariff hike for selected customers is a clear positive, the same in the mass pre-paid segment remains key," according to analysts at Emkay Global Financial Services.

Despite high India capex in Q1, management reiterated its unchanged annual capex guidance of Rs 24,100 crore for FY22. We maintain our revenue and EBITDA estimates but cut PAT projection on account of the higher effective tax rate (ETR) in Africa operations, the brokerage firm said in a report.

While the quantum and purpose of the fund-raise have not been intimated, it could possibly be to deleverage the balance sheet.

Apart from some profit-booking, Thursday’s fall may also be due to concerns of an increase in supply of shares and utilisation of the funds proposed to be raised, said analysts.

“Bharti's capital raising announcement has come as a surprise to us as there is no immediate need to raise capital, in our view. A capital raise to enhance capacity in anticipation of large market share shifts from VIL (Vodafone Idea) could be seen positively,” said Jefferies’ analysts led by Akshat Agarwal.

However, the brokerage added, in the past, Bharti Airtel has invested Rs 6,000 crore in acquiring 20 per cent stake in DTH business from Warburg Pincus and 5 per cent stake in Indus Towers from Providence Partners. Any potential increase in stake in Indus Towers funded through a capital raise will be seen negatively, given its (Indus’) muted growth prospects.

While the potential capital raise will be a near-term overhang on the stock, with market share shifts set to accelerate, Jefferies maintains a positive view and sees any related pullbacks as a buying opportunity. It has retained a Buy with a price target of Rs 685.