Analysts Remain Bullish On Bharti Airtel Despite Q2 Loss; Stock Rallies

Shares of Bharti Airtel Ltd. jumped after analysts cheered the performance of the telecom major’s Africa business and India wireless as they maintained their bullish investment recommendations for the telecom operator. The stock rose the most in six months, but soon pared some of the gains.

The Sunil Mittal-led carrier’s revenue rose 7.7% sequentially to Rs 25,785 crore in the July-September quarter—the highest ever. It, however, reported a net loss for the sixth straight quarter, largely due to a rise in interest costs, higher depreciation, and greater-than-anticipated tax. The company’s average revenue per user—the amount Bharti Airtel earns per subscriber per month—rose to Rs 162 from Rs 157.

All the 31 analysts tracking the stock have a ‘buy’ rating. The average of Bloomberg consensus 12-month target price implies an upside of 47.4%. The stock gained as much as 12.6% in early trade on Wednesday but pared some of it to trade 4.6% higher.

Here’s what the brokerages have to say…

JPMorgan

• Rates ‘Overweight’ with a price target of Rs 735 apiece
• The company’s domestic business growth was helped by strong operational performance in India wireless. Domestic revenue grew 7% quarter-on-quarter led by 7.4% growth in India wireless
• A sharp increase in 4G net additions (14.4 million) due to high data consumption per subscriber of 16.4 GB a month
• Postpaid subscribers grew 5% sequentially despite recent Jio launch
• Expansion of India wireless margins by 200 basis points helped Ebitda
• Bharti Airtel is capturing market share, benefitting from natural ARPU increases from an increase in consumption even without tariff hikes

BofA Securities

Maintains ‘Buy’ with a target price of Rs 640 apiece

• Results act as a catalyst for the share price that has shown subdued performance over the few months
• Increased net subscriber additions of 13.8 million, increase in ARPU to Rs 162 from 157 are key positives
• Consolidated revenue beats estimates, helped by Africa revenue and momentum across other divisions
• Ebitda margin showed 1.7 percentage points improvement quarter-on-quarter, helped by lower employee expenses (down 5%) and lower SG&A expenses (up 1.5% despite lockdown easing)

Citi

• Rates ‘Buy’ with a target price of Rs 690 apiece
• Consolidated revenue/Ebitda beat estimates helped by its India mobile business. Ebitda for India mobile segment increased 13% sequentially
• Consolidated net debt on a like-for-like basis was down to Rs 1.14 lakh crore in the quarter ended September from Rs 1.17 lakh crore in the April-June period
• Africa revenue reported a strong beat
• Home segment Ebitda rose 3% quarter-on-quarter, with coverage accelerating from 117 to 145 cities
• Strong mobile revenue growth will help widen the gap with Vodafone Idea Ltd. and drive market share gains
• Bharti Airtel is expanding the scope of its business-to-business offerings across cloud, communication, security, and data centers

Morgan Stanley

• Rates ‘Overweight’ with a price target of Rs 725 apiece
• Strong operational results with improvement of ARPU in India wireless. ARPU rose due to an increase in 4G subscriber base and upgrades in plans by existing 2G and 4G customers
• There is a 5% sequential increase in overall subscribers. Subscribers who had not recharged in the June quarter may have come back and others may have migrated from other networks
• Capex increased as lockdown restriction eased. Consolidated capex was Rs 6,800 crore in the September quarter compared with Rs 4,000 crore in June quarter.
• Free cash flow generation was $450 million during the quarter
• Signed more local cable operators to penetrate into more cities and upgraded existing copper infrastructure. Launched Airtel IQ, a cloud-based communication platform, and Airtel Secure, cybersecurity solutions for enterprises

Dolat Capital

• Reiterates ‘Buy’ with a target price of Rs 663 apiece
• 14 million subscribers, 14.5 million 4G additions, 5 million subscriber additions in Africa, with sequential ARPU growth were key highlights of the second quarter
• India wireless business revenue and Ebitda grew by a healthy 7.4% and 12.8% sequentially. ARPU increased to Rs 162.2 from Rs 156.8
• Bharti Airtel is well-poised to gain market share and grow even in absence of the tariff hike

ICICI Securities

• Maintains ‘Buy’ with a target price of Rs 655 apiece
• Bharti Airtel’s India mobile print shows marked improvement in many areas such as growth in total subs without ARPU dilution
• Improved quality of customer addition; lower churn rate increasing lifetime value of customers and continued delivery of 4G net additions are other positives
• FY21 had downside risks on delay in tariff hike; however, robust Q2 FY21 performance has offset much of it
• A higher 4G subscriber base will enable Bharti Airtel to better transfer tariff hike into ARPU whenever it happens
• Home services and Airtel Business (enterprise) have grown at a steady rate of 7.3% and 7.5%, respectively. Africa had a stellar performance with revenue growth of 13.4% quarter-on-quarter and 14.3% over the year ago