Bharti Airtel target price revised by Jefferies to Rs 675

Bharti Airtel target price: Airtel's 14 mn subscriber additions and 8% QoQ growth in Africa operations surprised positively. While market share gains are playing out, moderation in Jio's subscribers will likely delay tariff hikes. Post the MSCI related buying in February, in absence of tariff hikes, we see few positive catalysts. Jefferies raised their Bharti Airtel revenue and EBITDA forecasts by 7-9% to factor higher subscribers and maintain Hold with revised price target of Rs 675/share.

Bharti Airtel’s Operationally strong Q3:

Bharti Airtel's Q3 FY21 results were encouraging, with consolidated revenues, up 24% YoY, consolidated EBITDA, up 38% YoY, ahead of estimates due to strong showing in Africa and India mobile. Bharti Airtel has deconsolidated the tower business from its revenues and EBITDA due to loss of control and will treat it as an associate in future. The de-consolidation also helped Bharti report a consolidated profit of Rs 8.5 bn, due to gains of Rs 94 bn on deemed disposal of tower business.

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Bharti Airtel’s Strong subscriber additions the key positive surprise:

Bharti Airtel 14 mn subscriber additions in Q3 was the key positive surprise. Subscribers additions were strong in both 4G segment (+13m) as well as postpaid segment (+0.7m) with churn under control. This along with a 2% QoQ rise in ARPUs to Rs 166, the highest in 4 years, drove a 7% QoQ jump in India mobile revenues. Strong 4G additions drove the ARPU increase in Q3. Average data usage rose 2% QoQ to 16.4GB/month. India mobile margins expanded by 110 bps (QoQ) mainly due to operating leverage which is in line with estimates.

Market share gains continue for Bharti Airtel but tariff hikes unlikely:

Bharti Airtel subscriber additions across postpaid and prepaid data segments indicate strong market share gains in Q3. Given the strong subscriber traction, we raise our subscriber estimates 5-8%. However, given moderating subscriber additions of Reliance Jio, we maintain that tariff hikes will likely be delayed. Over FY 21-23, Jefferies now expects Bharti Airtel to deliver 15% CAGR in revenues and 26% CAGR in

EBITDA assuming 10% tariff hikes in Q4 FY22 and Q4 FY23.

Bharti Airtel's strong Q3 results and upcoming passive buying will support the stock in near term, however Jefferies see limited positive catalysts beyond that in absence of tariff hikes. Furthermore, Reliance Jio's potential steps to arrest its subscriber churn and a potential capital raise by Vodafone Idea could negatively impact the stock.