Bharti Airtel inches towards 52-week high on strong earnings outlook

ICICI Securities expects Bharti Airtel to lead subscriber addition in December quarter aided by Vodafone Idea churn and challenges faced by the new operator due to farmer's protest

Shares of Bharti Airtel hit an over 5-month high of Rs 565, up 3 per cent on the BSE on Tuesday, on strong earnings outlook, steady 4G subscriber additions -- which are likely to see 2-3 per cent quarter on quarter (QoQ) average revenue per user (ARPU) growth -- and strong EBITDA (earnings before interest, taxes, depreciation, and amortization) growth, analysts said.

The stock of the telecom services provider was trading at its highest level since August 10, 2020. Moreover, it is 8 per cent away from its 52-week high of Rs 612 touched on May 20, 2020. In the past six months, Bharti Airtel has underperformed the market by falling 2 per cent, as compared to a 35-per cent rally in the S&P BSE Sensex. However, in the past one year, it has rallied 23 per cent, as against a 18-per cent gain in the benchmark index.

ICICI Securities expects Bharti Airtel to lead subscriber addition in October-December quarter (Q3FY21) aided by Vodafone Idea churn and challenges faced by the new operator due to farmer's protest.

"The reported ARPU is likely to witness around 2 per cent QoQ growth at Rs 165, aided by higher data based usage upgrades. Meanwhile, Indian wireless revenues are expected to witness 5.3 per cent QoQ growth at Rs 14,565 crore. India non-wireless revenues traction may also remain robust especially broadband and enterprise," the brokerage firm said in result preview.

"We expect India EBITDA margins at 44.8 per cent, down 100 basis points (bps) QoQ owing to tower exclusion (up 50 bps on adjusted basis). Africa margins are expected to be stable QoQ at 45 per cent. Key monitorables should be commentary on ARPU trajectory and non wireless business. The brokerage has 'buy' rating on Bharti Airtel with target price of Rs 700 per share.

Motilal Oswal Financial Services, on the other hand, said it continues to remain bullish on Bharati Airtel given its strong earnings outlook (even without a price hike) and improving RoCE and FCF generation potential. The brokerage expects it to generate post-interest free cash flow (FCF) of Rs 6,400 crore in FY22E after factoring in the spectrum renewal cost of Rs 13,000 crore.

"A price hike, which looked uncertain in the last 6-9 months, has now started to look imminent with the weakening of industry subscriber growth. Our recent interactions with industry experts indicate a potential price hike of 15-20 per cent in the next two months. Competitive pricing in postpaid and FTTH (fiber-to-the-home) segment by peers have had a limited impact on earnings," it said in a December report. It maintains 'buy' rating on the stock and target price of Rs 650 per share.