Bharti Airtel rallies 9% in 3 days after tariff hike; zooms 50% in 6 months

Shares of Bharti Airtel continued their upmove, hitting a new high of Rs 779.70 on the BSE, after they rallied 3 per cent in Wednesday's intra-day trade. In the past three trading days, the stock of the telecom services provider has rallied 9 per cent following the announcement of increased tariffs in a range of services effective November 26.

In the past one month, the stock of Bharti Airtel has surged 12 per cent, as compared to a 3.3 per cent fall in the Sensex. Moreover, in the past three months, it has rallied 28 per cent as against a 5 per cent rise in the benchmark index. Further, over the past six months, the market price of Bharti Airtel has zoomed 50 per cent, as compared to a 16 per cent surge in the Sensex.

The decision, the company said, was for a "financially healthy business model". The company hiked prepaid tariff by 20-25 per cent and data top-up plans by 20-21 per cent.

The company indicated that tariff hike was taken to “provide a reasonable return on capital that allows for a financially healthy business model and that this level of Average Revenue Per User (ARPU) will enable the substantial investments required in networks and spectrum, including 5G”

"With prepaid subscriber and revenues forming ~95 per cent, ~87-88 per cent of overall subscribers, revenues, respectively, the tariff hike will result in wireless revenues increasing by ~19 per cent. Furthermore, assuming conservative pass through of ~75 per cent to EBITDA, the wireless EBITDA will rise by ~29 per cent from current levels. Hike pass through is likely over the next two quarters. We expect peers to follow suit with similar hikes," analysts at ICICI Securities said in a stock update.

Favourable industry structure of three players (two being strong), government relief, tariff hike and fund raise puts Airtel in sweet spot to maintain its relative strength among peers with a formidable digital ecosystem offering. We remain constructive on Airtel and maintain BUY rating with a revised SOTP target price of Rs 860, the brokerage firm said.

Meanwhile, post tariff hike, Moody's Investors Service on Tuesday revised Bharti Airtel's ratings outlook to positive from stable. "The outlook change to positive reflects Bharti's improving operating performance and credit metrics which, if sustained, could support an upgrade to investment grade within the next 12-18 months," said Annalisa Di Chiara, a Moody's Senior Vice President.

"The continued expansion of profitability, particularly at its core Indian mobile business, together with a steady reduction in its balance sheet debt, is needed to mitigate the potential effect on Bharti's credit metrics of significant investments in 5G and the compounding growth of deferred liabilities during the moratorium period," added Di Chiara, who is also Moody's lead analyst for Bharti. CLICK HERE FOR FULL REPORT