Motilal Oswal Securities
Bharti has operationally outperformed our expectation consistently over the last four quarters, maintaining its 4G subscriber base and also revenue market share. Peak capex is behind, and with strong network/spectrum capability, it is well placed compared to peers. Even in the case of limited government relief, it may survive with a potential duopoly structure. The consequent strong growth potential could offset regulatory pressures.
Given the aforementioned strengths, we maintain our positive stance on Bharti Airtel
with a target price of Rs 425, ascribing 12x EV/EBITDA to the India business and 5x to the Africa business (given low trading multiples).
The AGR penalty will undoubtedly impact the company’s balance sheet and borrowing costs. Given the quantum of the penalty, Bharti will have to raise capital to keep leverage under check. Nevertheless, the weakening financial viability of Vodafone Idea Limited (VIL) even if the companies get a relief from the government on payment timeline and some potential license fee reduction in the future.
We have assumed that Bharti will gain 40 per cent of VIL’s revenues/subscribers, while JIO might garner a higher share of 60 per cent. Eventually, two large players controlling the telecom market with JIO’s aspiration to become the dominant player will drive tariff increases, which we anticipate from FY22 after a consolidation in FY21. Bharti’s net-debt/EBITDA should rise to ~4x if the entire penalty is paid through debt. Maintain our target price of Rs 434 and overweight stance.
(Bharti) reported better-than-expected Q2FY20 numbers with strong growth across key verticals. We believe, the AGR order impacts Vodafone Idea the most, impairing its ability to invest in network. This will provide Bharti an opportunity to boost market share, driving profitability. The stock is trading at an attractive 6.9x FY21E EBITDA. Maintain ‘BUY’ with revised target price of Rs 425 (Rs 414 earlier) as we rollover valuation to FY21E.
Bharti is the only telco to have nil operational cash loss in Q2FY20 and we see this as an advantage over the longer term. AGR case liability speculation has ended and works out to a whopping Rs 343 billion. This excludes liability arising out of acquisitions and spectrum trading on which we await more clarity. We have already built-in a negative impact of Rs 61/share to fair value from AGR liability. We maintain our estimates and target price at Rs 450. Retain BUY.