Bharti Airtel Upgraded To 'Neutral' On Tariff Hike Prospects, 5G Investment: BofA Securities
The research firm has increased the target price to Rs 1,145 apiece from Rs 800 per share, implying an upside of 7.61%.
Bharti Airtel Ltd. is best placed among Indian telcos to benefit from a tariff hike due to its higher number of high-end users, prompting a rating upgrade from BofA Securities.
The research firm expects 5G to gradually scale up in India in the calendar year 2024. As only two telcos—Jio and Bharti—are investing in 5G, BofA Securities expects the market share shift to start gravitating towards these telcos at a faster pace.
"Besides, we note that broadband businesses will also pick up pace as net adds are improving given rising demand," the research firm said in a Jan. 9 note.
BofA Securities upgrades Bharti Airtel to 'neutral' from 'underperform' as it sees a meaningful tariff hike in the next 12 months but remains concerned about capex, especially if fixed wireless access picks up.
The research firm has increased the target price to Rs 1,145 apiece from Rs 800 per share, implying an upside of 7.61%.
To account for the 20% tariff increase and operational leverage caused by it, BofA Securities raises FY25/26 earnings per share by 12–14%.
Capex Likely To Pick-Up
The approach towards capex by Jio and Bharti has been different. While Jio has front-loaded its capex, Bharti’s capex is gradual based on improving handset penetration, the note said.
"Both telcos are also focusing now on fixed wireless access. As the average fixed wireless access user would consume 100GB+ vs. 20GB for mobile, we expect network utilisation to improve. This, coupled with 5G uptake, may likely lead to capex uptake."
Valuations Not Cheap
Bharti Airtel is one of the most expensive telcos, but arguably with a better Ebitda CAGR. The research firm estimate a 13% Ebitda CAGR growth for Bharti Airtel from FY23-26E vs. the 4% average of other Asian telcos.
Risk Upside
News flow of potential Jio IPO—as flagged by RIL management—aiding a re-rating of Bharti multiple;
Potential value unlocking of its datacenter and payments bank business.
Downside
Higher than expected capex,
tariff hike delayed yet again.
Twenty-three out of the 30 analysts tracking the company have a 'buy' on the stock, five recommends a 'hold' and three suggest a 'sell', according to Bloomberg data. The average of 12-month analyst price targets implies a potential downside of 0.3%.
