Bharti airtel surges more than 3.5% today: Know Why!

Airtel Jumps nearly 4%

Bharti Airtel surged more than 3.5% today as most analysts maintained a ‘Buy’ rating on the back of growth opportunities seen across its mobile and digital segments. The stock also jumped as the company is planning to acquire a 4.7% stake in Indus Towers, an affiliate of Vodafone Group Plc for Rs 2,388.06 crore.

Investor and Analyst Day highlights: Bharti Airtel sees its 5G readiness and segments such as broadband, homes, and enterprise (business-to-business, data centres) to be the key growth drivers going forward.

Airtel said that it has 5G ready networks with successful trials to back them. Its ARPU at Rs 250 levels can drive RoCE (return of capital employed) to 20% vs 6% in FY21 at an ARPU level of Rs 160. However, the company can go for another prepaid tariff hike by the end of CY 2022 which may be followed by more hikes in the coming years.

The company also said that broadband is going to be a core focus with plans for expansion of home pass from 16 million to 40 million by 2025 through its own and LCO model. Another area of focus is the enterprise services such as IoT (internet of things), security, cloud, data centre, Communications as a Service (CaaS) and more.

Indus Tower Deal: Bharti Airtel to acquire a 4.7% stake in Indus Towers and its wholly-owned subsidiary, Nettle Infrastructure Investments for an all-cash deal of Rs 2,388.06 crore.

Deal details

  • Bharti Airtel will purchase a 4.7% equity stake from Euro Pacific Securities, an affiliate of Vodafone Group Plc.
  • The principal condition for the deal is - the amount paid shall be inducted by Vodafone Idea as fresh equity in Vodafone Idea (VIL) and simultaneously remit to Indus Towers to clear VIL's outstanding dues.
  • Indus Towers along with Nettle Infrastructure Investments, a wholly-owned subsidiary of the company, currently hold 41.73% shareholding of Indus Towers.
  • The deal will be executed at Rs 187.88 per share basis with the agreed price formula in the agreement, aggregating to Rs 2,388.06 crore.

About Indus Towers

  • Indus Towers was formed by the merger of Bharti Infratel and Indus Towers.
  • As of 31 December 2021, it has over 1,84,748 towers and 3,35,106 co-locations, and a nationwide presence covering all 22 telecom circles.
  • Indus' leading customers are Bharti Airtel (together with Bharti Hexacom), Vodafone Idea, and Reliance Jio Infocomm.

How will the deal help Airtel?

This deal will allow Bharti Airtel to secure continued strong provision of services from Indus Towers. Also, it will protect and enhance Bharti Airtel's value in Indus Towers, enabling it to receive dividends and subsequent financial consolidation of Indus Towers in Bharti Airtel.

Recently, Bharti Airtel prepaid Rs 8,815 crore of spectrum dues to reduce interest expenses. This was the second such prepayment by the company in the last three months due to its strong cash flow generation, equity infusion and borrowing at significantly lower interest rates.

The stock is now up by nearly 6.5% in just last 2 trading sessions.

Brokerage Radar:

Of the 33 analysts tracking the company, 30 maintain a ‘buy’, two suggest a ‘hold’ and one recommends a ‘sell’, according to Bloomberg data.

Motilal Oswal - The brokerage firm maintains a ‘BUY’ rating with a target price of Rs 910 per share. In its recent report, the firm said that Airtel has multiple ARPU levers supported by a favourable market construct, tariff hikes, and a shift to smartphones from feature phones. It expects a 15% ARPU increase over FY22-24E through market share gains, tariff hikes and customer upgrades, and growth in the non-mobility business.

DART - The firm maintains a BUY rating with a target price of Rs 840 per share. The firm reframed Airtel's B2B strategy to increase the customer wallet share and add new customers at a faster pace. It expects 5G device penetration to rise to 10-12% by the end of FY23 and 23-25% by the end of FY24 from 4% currently.

ICICI Direct: The firm maintains BUY rating with an SOTP target price of Rs 860. The firm said that Bharti Airtel is India’s second largest telecom operator with a revenue market share of 37%. Favourable industry structure of three players (two being strong), government relief, tariff hike and fundraise puts Airtel in a sweet spot to maintain its relative strength with a formidable digital ecosystem offering.