Bharti Airtel Stock Price: Over the past year, the price of Bharti Airtel shares has increased by 32%. The telecom stock is anticipated to increase by another 34% as the sector’s robust revenue and Ebitda growth are being driven by the tariff increases. Three levers, including an increase in the 4G mix, are expected to help the telecom company’s development, say analysts at Motilal Oswal Financial Services. Gains in market share brought on by VIL and ongoing pricing increases. These levers could help Bharti achieve an 18% EBITDA CAGR during the years FY22 to FY24E, according to the brokerage, along with an additional margin of 65%. It rates the company as a “buy,” with a target price of Rs 910 based on SOTP and an expected FY24 EV/EBITDA of 11x for the India Mobile business and 5x for the Africa business.

Although Bharti’s operational performance has been good over the past couple of years, it has trailed in FCF generation and deleveraging, which has been a major worry for the company, according to Motilal Oswal. FCF is a crucial component of the telecom industry since constant technological advancement keeps Capex intensity high. However, despite the planned expenditures in 5G, we think Bharti is experiencing a decadal shift in its ability to generate FCF, which might result in healthy deleveraging.

Huge FCF Opportunity

According to the domestic brokerage firm report, Bharti Airtel is entering a phase of high FCF growth. During the last three years (FY19-22), the company’s EBITDA has jumped over 2x adding Rs 318b as against an average CAPEX (excluding Spectrum) of Rs 233b (flat over the period). This translated into a significant FCF. However, Indus and DTH stake acquisitions, AGR payments, and liability et al. have led to limited FCF and deleveraging. Analysts at Motilal Oswal expect Bharti to generate FCF (post-interest) of Rs 251b/Rs368b, i.e. 22 percent and 47 percent of its net debt (post-Ind-AS 116) in FY23 and FY24 respectively.

Growth Drivers: 4G mix improvement, market share gains, tariff hikes

Analysts claimed that the recent five-year shift in the market structure had allayed a significant historical worry from the previous decade, when profitability was weak and Capex continued to climb, resulting in high debt. The current telecom sector consolidation has resulted in repeated rounds of rate increases, totaling >50%, which translated into a 39% increase in ARPU for Airtel during FY19–22 and gains in market share of almost 5.3%. “We identify three growth drivers for Bharti: an improved 4G mix, market share gains from Vodafone Idea (VIL), and ongoing pricing increases. Throughout FY22–24E, these levers should help Bharti achieve an 18% EBITDA CAGR, according to the report’s analysts.

Bharti Airtel Ltd., a large cap business with a market cap of Rs 3,96,514.56 Crore and engaged in the telecommunications sector, was founded in 1995.

Financials The company recorded a Consolidated Total Income of Rs 31,518.90 Crore for the three months ended March 31, 2022, up 4.8 percent from the previous quarter’s Total Income of Rs 30,063.70 Crore and up 22.02 percent from the same quarter last year’s Total Income of Rs 25,831.20 Crore. In the most recent quarter, the company reported a net profit after tax of Rs. 3,001.40 crores.

With Jio needing to start focusing on profitability (and not just on subscriber additions) as it gets ready for its potential IPO in the next 1-2 years, JM Financials stated in an earlier report that it believes tariff increases are likely to be more frequent going forward. Jio will also likely be more willing to participate in tariff increases. Given the sticky nature and high quality of its subscribers, the brokerage believes that in this scenario the sector might experience a large re-rating and that Bharti could benefit significantly from that, ensuring that tariff increases trickle through to ARPUs.

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