Airtel share price today: 10 pct surge logged; here is what brokerages say investors should do

ICICI Securities maintains buy rating with target of Rs 655. Bharti Airtel’s (Bharti) Q2 FY21 result shows its superior execution in India mobile, and across other segments. Bharti’s India mobile print shows marked improvement in many areas such as growth in total subscriptions without ARPU dilution which shows quality of customer addition; lower churn rate increasing lifetime value of customers and continued delivery of 4G net add, which has now likely matched the market leader. ICICI Securities estimates for FY21 had downside risk on delay in tariff hike; however, robust Q2 FY21 performance has offset much of it.
Morgan Stanley maintains an overweight rating on Bharti Airtel with a target of Rs 725. Morgan Stanley says after some strong operating metrics in Q1, the company continued to show improvement in Q2 as well. It reported robust subscriber additions, 4G additions, ARPU improvement and strong operating leverage.

Strong operational results:
Consolidated revenue rose 7.7% QoQ (better than estimates), with strong performance in the Indian wireless business. Consolidated EBITDA was 8% ahead of estimate as margins expanded 150 bps QoQ.

Few things stood out:

1) ARPU in Indian wireless: Airtel reported ARPU of Rs 162 (+3.2% QoQ and better than Rs 160 estimate), which was higher thanks to increase in the 4G subscriber base and upgrades in plans by existing customers (both 2G and 4G). Indian wireless revenue of Rs 138.3 bn (+26% yoy / +7.4% QoQ) was better than estimated and EBITDA margin of 42.6% (+204 bps QOQ) improved thanks to better revenue.
2) Smart increase in data subscription despite impact on smartphone shipments: Overall subscribers of 293.7 mn (+5% QoQ) increased. Subscribers who had not recharged in the June quarter (3.8 mn) because of Covid may have come back and the balance was subscribers who migrated from other networks. On the data front, the company's 4G data subscriber base increased 14.4 mn, taking the total to 153 mn.
3) Capex increased QoQ as lockdown restrictions eased: Consolidated capex was Rs 68 bn vs. Rs 40 bn in the previous quarter. FCF generation was U.S. $450 mn during the quarter, which improved sequentially.
 
Jefferies maintains buy rating on Bharti Airtel with revised price target of Rs 610. Bharti Airtel's 14 mn subscriber additions, 200 bps QoQ margin expansion and growth in Africa operations surprised positively. FCF generation was healthy and leverage at 2.9x was comfortable despite addition of AGR liability. Jefferies remains constructive despite uncertainty around the timing of the next tariff hike, as, in its absence, market share gains are playing out. Jefferies raise their FY21-23 forecasts by 4-6%.

Operationally strong Q2:

Bharti Airtel's Q2 FY21 results were encouraging, with consolidated revenues, up 22% YoY, consolidated EBITDA, up 32% YoY, ahead of estimates, driven by 160 bps QoQ expansion in margins to 45.4%. PBT at Rs 5 bn was inline with estimates due to higher finance costs, lower other income and lower share of associates. Bharti reported consol loss of Rs 7.6 bn, slightly below expectations.

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Outlook on Bharti's India mobile growth remains healthy:

Bharti's subscriber additions across segments indicate strong market share gains in Q2. This validates the thesis that if tariff hikes don't happen, Bharti Airtel will likely witness acceleration in subscriber growth due to market share gains. Jefferies currently built a 5-10% tariff hike with 15 mn subscriber additions over FY22-23.