Bharti Airtel up 2% after board approves Rs 21,000-crore rights issue

The rights issue is price at Rs 535 per share, with entitlement ratio of one equity share for every 14 equity shares held by eligible shareholders as on the record date

Shares of Bharti Airtel gained 1.9 per cent and traded at Rs 605.5 on the BSE in the intra-day trade on Monday after the telecom services provider announced Rs 21,000-crore rights issue. The stock hit an intra-day low of Rs 591.10 after opening at Rs 597.75. In comparison, the S&P BSE Sensex was up 0.69 per cent at 56,513 points at 09:35 am.

"The rights issue is priced at Rs 535 per fully paid-up equity share, including a premium of Rs 530. Further, the rights entitlement ratio entails one equity share for every 14 equity shares held by eligible shareholders as on the record date," Bharti Airtel said in an exchange filing on Sunday, August 29, 2021.

As far as terms of payment of the issue price are concerned, 25 per cent is to be paid on application, balance in two more additional calls as may be decided by the board or committee of the board, based on the company’s requirements within an overall time horizon of 36 months. The promoter and promoter group of the company will collectively subscribe to the full extent of their aggregate rights entitlement along with any unsubscribed shares in the issue.

While utilization of the issue proceeds has not been disclosed, this is the third fund raising round in the last three years after it raised a cumulatively Rs 42,000 crore in FY20 (37 per cent dilution) through a successive issuance of rights, qualified institutional placement (QIP), and foreign currency convertible bond (FCCB). Including the upcoming rights issue, it will be a cumulative 46 per cent dilution in less than three years.

"The purpose of the fund raise is likely to be communicated by the company during the conference call on August 30. However, we believe it is a pre-emptive fund raise to utlise it for step up investments to capture Vodafone Idea subscribers and/or participate in 5G auction (likely by FY22 end). This move of expanding growth war chest without stretching leverage (currently at 3x net debt/EBITDA) is, thus, positive, in our view," ICICI Securities said in a note.

Motilal Oswal Financial Services, meanwhile, said: The unexpected capital raise may cause a negative reaction in the short term, but we see a good earnings growth opportunity over the next 12 months. We value Bharti on an FY23E basis, assigning an EV/EBITDA of 11x to its India Mobile business and 5x to its Africa business, arriving at a SoTP-based TP of Rs 720.