Bharti Airtel shares will make you rich! Buy at target price Rs 425 - 26% return in offing

With the consistent volatility witnessed in Dalal Street since start of 2019, it becomes important to invest in the right stock in order to reap fruits of it going forward. And, despite fierce rival Reliance Jio, Bharti Airtel is seen as the most compelling stock this year, in fact, Sunil Mittal’s telecom arm is seen giving a massive 26% return to its investors! Yes, massive riches in offing. Significantly, rating agency CLSA has increased its target price for Bharti Airtel, even though currently the company is struggling to retain its subscriber base from the onslaught of Mukesh Ambani’s Reliance Jio - RJio has disrupted the sector with its cheap prepaid packs. Interestingly, the rating agency sees a bigger picture emerging in Airtel and has revealed four reasons why  this company's stock is a money magnet ahead. 

Commendable revenue-share performance! 

India's mobile market has consolidated into a three-player oligopoly and sector revenues have been stable over the past two quarters after falling 30% from peak. In 2018 even as Jio gained 10ppt revenue market share to 26%, Bharti maintained its market share at 31%. 

Furthermore, ramp-up in data networks and gain in 4G subscribers helped it gain 6ppt market share in metros. In FY20, CLSA forecast is for Bharti to retain its market share led by a 23% growth in data subscribers.

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Inevitable turn in India mobile Arpu/Ebitda!

With ongoing tariff stability, adoption of bundled data plans by Bharti’s subscribers will boost Arpus since bundled rates are c.40% higher than Bharti’s blended Arpu. Furthermore, Bharti’s initiative of minimum recharge plans which makes Rs 35 monthly spend mandatory will help reduce low-Arpu subscribers. 

Given these factors, Bharti Airtel is expected to register 11% growth in India mobile revenues and 39% growth in India Mobile Ebitda in FY20.

Planned Africa IPO and deleveraging!

Besides, Bharti’s 14 countries Africa operations are on the growth track and forecast is for 4% revenue growth and 6% Ebitda growth in FY20. While Nigeria led Africa margin expansion to 37% (16ppt ahead of India mobile), further improvements are still likely from East Africa. 

Meanwhile, post recent US$1.25bn equity raise, Bharti’s planned Africa IPO will enable further US$0.9bn (on retaining 51%) deleveraging. Bharti can raise another ~US$2.7bnthrough 35% stake sale in Infratel and these can help Bharti lower debt by 22% in FY20.

Compelling valuations!

Bharti’s stock disappointed in 2018 as Jio’s renewed tariff aggression drove sharp decline in revenue and Ebitda; however Bharti’s market-share defence was commendable. 

CLSA analysis reveals that Bharti’s current stock price implies no pricing increase until end-FY21, while we factor c.7-12% tariff hikes over FY19-21 which drives 19% consol Ebitda Cagr over FY19-21CL.

Why Buy it now?

CLSA says, “Bharti Airtel's adoption of bundled plans and minimum recharge plans will improve Arpu.”

CLSA forecasts Bharti consol Ebitda Cagr at 19% over FY19-21CL. Stock is inexpensive at its 5Y average on trough Ebitda. BUY with revised Rs425 target (was Rs415).

If you take the current price of Airtel and CLSA’s target, then the company is set to give you 26% return ahead. 

Today, the share price of Airtel was trading at Rs 333.20 per piece down by Rs 4.05 or 1.20% on BSE at around 1240 hours.