CLSA highlights 2021 outlook for Bharti Airtel with Rs 730 target on strong growth, likely AGR relief and an inexpensive Valuation

CLSA reiterates their Buy recommendation on Bharti Airtel with target price of Rs 730. Bharti Airtel remains CLSA’s top pick in Telecom Sector. In 2020, despite Reliance Jio gaining market share to 37% (increase by 4ppt), Airtel gained 2ppt market share to 32% and its ARPU was up 27%. 35% growth in Airtel’s data subscribers and tariff hikes will lead to continued growth. CLSA forecast a consolidated EBITDA CAGR of 16% over FY21-23E and the stock is inexpensive at a 10% discount to its five-year average EV/EBITDA.

Bharti Airtel stock disappointed in 2020 due to adverse AGR verdict, how3ver, its market share performance was commendable. Bharti Airtel and Vodafone Idea have filed AGR petitions with the Supreme Court, if AGR dues relief is granted, it would provide upside to the fair value of Bharti Airtel.

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Leading ARPU and the rising competition:

In 2020, led by tariff hikes and the adoption of bundled 4G data plans by Airtel’s mobile subscribers,  its ARPU was up 27% to Rs 162, which is now up 12% higher than Jio. Furthermore, this is with only 52% of Airtel’s mobile subscribers on 4G bundled plans. CLSA expects Bharti Airtel to register 18% ARPU growth and with its 4G penetration reaching 69% of its own mobile subscribers.

Comfortable gearing for upcoming spectrum auction:

The Government scheduled the spectrum auction in March. Airtel can raise $4 bn via the potential monetisation of its 41.7% stake in Indus Tower and rising future cash flows post capex could also enable deleveraging. $1.9 bn needs to be paid upfront is Bharti Airtel purchases all of its 8 circles expiring / renews spectrums.

Credit Suisse believes that the stage is set for a potential increase in MSCI weight for Bharti Airtel’s  on Feb 21st review after they received necessary approvals for increasing foreign ownership limit to 100% from 49%.Bharti Airtel would be the beneficiary of a near term price hike. Delay in price hike would pose some challenges for Vodafone Idea, pushing the telecom sector towards further consolidation. MSCI inflows would potentially see inflows of Rs 1 bn into Bharti Airtel.