S&P Revises Bharti Airtel's Outlook To Positive; Sees Strong Earnings Growth After Price Hike

S&P Global Ratings on Friday revised its outlook on Bharti Airtel Ltd. to positive as the telecom giant is expected to see strong growth in its India earnings over the next 24 months, primarily driven by a recent increase in mobile tariffs. S&P also affirmed the rating to 'BBB-.'

The company, from July 4, raised mobile plan prices by 10%-21%, which is expected to significantly boost revenue. The rating agency has projected Bharti Airtel's earnings before interest, tax, depreciation, and amortisation from India operations will rise 18%-20% in this financial year. It also expects Ebitda for the financial year ending March 2026 to see an additional 12%-15% rise.

"We also anticipate higher earnings from Bharti Airtel's home and enterprise segments owing to increased uptake of home broadband and enterprise digitalization," S&P Global Ratings said in its report.

Bharti Airtel's performance in the September quarter already reflects the gains from the tariff hike. The telecom giant's average revenue per user in the second quarter stood at Rs 233, up 10.4% from the previous quarter, while the net subscriber loss was less than 1%.

While the benefit of the tariff hike will materialize in the next two quarters, telecom companies will lose some subscribers because of the higher costs pushing consumers to reduce the number of SIMs they hold, said S&P. However, very few customers will move to a lower-priced plan with smaller data packages as data consumption habits have changed.

Borrowings at Bharti Telecom Ltd., have been rising steadily and according to S&P's estimates the net debt stood at approximately Rs 250 billion as of March 31, 2024, which is about 10% of Bharti Airtel's adjusted debt at the same date. The increasing debt at this level can weigh on the telecom, since Bharti Telecom may depend on dividends from the subsidiary to service its debt.

Bharti Airtel stock rose as much as 3.27% during the day to Rs 1,575 apiece on the NSE. The stock closed 2.89% higher at Rs 1,569.30 per share. This compares with a 2.39% advance in the benchmark Nifty 50. It has risen 61.83% in the last 12 months and 54.91% year-to-date.

Out of 35 analysts tracking the company, 29 maintain a 'buy' rating, four recommend a 'hold,' and two suggest 'sell,' according to Bloomberg data. The average 12-month consensus price target implies an upside of 14.9%.