Bharti Airtel gains over 3% as brokerages see limited COVID-19 impact

Brokerage firm Motilal Oswal said Bharti Airtel is best hedged to face regulatory woes
Shares of Bharti Airtel rose as much as 3.57 per cent to Rs 444.60 on the BSE on Tuesday after brokerage firms Morgan Stanley and Motilal Oswal remained bullish on the stock despite the disruption caused by coronavirus (Covid-19) pandemic.

At 11:08, the stock was up 0.36 per cent as compared to 2.03 per cent gain in the S&P BSE Sensex. Around 66 lakh shares have changed hands on the NSE and BSE so far.

In an exchange filing on Monday, Bharti Airtel announced special measures to assist low income group customers impacted by the Covid-19 crisis. The company has extended the validity period of more than 8 crore pre-paid connections until April 17. Further, it will also credit talk time of Rs 10 in these accounts. These benefits will be available to users in the next 48 hours, the telecom operator said.

Analysts at Morgan Stanley said the estimate validity extension can impact Airtel India wireless revenue by 0.6-0.7 per cent while India wireless earnings before interest, tax, depreciation, and amortization (EBITDA) can go down by 2.7-3 per cent. Despite this, the brokerage house remains 'Overweight' on the stock with the target of Rs 575 per share.

Brokerage firm Motilal Oswal Securities has a 'Buy' rating on the stock and it sees an even higher upside, with the target of Rs 620.

In a note dated March 31, 2020, the brokerage firm said, "We see limited impact of COVID-19, currency and crude price swings on the BHARTI stock and believe that it is the best hedged to face regulatory woes." 

"Given the complete lockdown in India due to Covid-19, net subscriber adds (average 2-3 months) have stalled thus impacted by 1-2 per cent. With physical recharges being unavailable, there has been a shift to digital recharges (from 15 per cent in the last 1-2 years to 35-40 per cent currently). In the current environment, more tech-savvy data subscribers with higher average revenue per user (ARPUs) and longer-term recharges of 90 days may see lower impact," the brokerage firm said.

About the free incoming calls scheme, the report said, "This could impact 1QFY21 revenue/EBITDA by Rs 2.2 billion/ Rs1.8 billion i.e. equivalent to meager 1-2 per cent. Against this, increased data consumption should see upgrades in recharge values, thus, mitigating the impact. In 4QFY20/1QFY21, we currently estimate 13 per cent/19 per cent revenue growth on QoQ basis," it said.

Overall, "BHARTI has EBITDA growth opportunity either through additional ARPU hike (function of Vodafone Idea survival) or market share gains in case VIL shuts down. In the more likely scenario of VIL’s survival, BHARTI has opportunity to reach Rs 621 billion EBITDA in FY22 that could generate post interest FCF (free cash flow) yield of 11 per cent" the report said.

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