Bharti Airtel: Antique Broking initiates coverage on stock, sees 25% upside; here is why

Stock market today, Bharti Airtel share price NSE BSE: Telecom major Bharti Airtel is set to ride its best financial performance phase in over a decade, given multiple favourable factors such as tariff hikes, 2G upgrades, strong growth in enterprise and FTTH (Fibre to the Home), and a fall in capex post the 5G rollout over the next three years, note analysts at Antique Stock Broking as they initiate coverage on the telecom major. 

Shares of the company have given impressive returns of more than 56 per cent in the past one year as compared to over 28 per cent gains clocked by the Nifty50 index. 

Analysts at the brokerage firm expect Bharti Airtel's return ratios to top 20 per cent and note that the likely historic high free cash flows will drive balance sheet deleveraging. "While challenges do exist as Bharti has chosen a different 5G rollout path vs. key competitors, we believe it is unlikely to dent Bharti’s subscriber base or growth significantly. We also believe valuations do not reflect the emerging highly positive macro telecom sector environment. Initiate coverage on Bharti with a BUY rating and a DCF-based SoTP target price of INR 1,505, an upside of 25%," wrote research analysts Varatharajan S., Kishan Mundhra, and Kartikey Billaiya, in a note dated April 10, 2024.

Latest Trai data

The total number of broadband subscribers increased from 91.10 crore at the end of January to 91.67 crore in February, as per the monthly subscriber report published by the Telecom Regulatory Authority of India (TRAI).

The top five service providers constituted 98.35 per cent of the total broadband subscribers. These include Reliance Jio Infocomm (52.2 per cent), Bharti Airtel (29.41 per cent), Vodafone Idea (13.80 per cent), BSNL (2.69 per cent), and Atria Convergence (0.24 per cent).

Telecom companies are expected to take a 15 per cent–17 per cent tariff hike post the elections. The last hike of about 20 per cent was in December 2021.

Bharti Airtel's Africa business holds key 

Antique Stock Broking notes that Bharti Airtel is among the top two players in 13 out of the 14 African markets it operates in, with revenue growth of 16 per cent per annum over the last five years. The target market remains under-penetrated with only 39 per cent being data subscribers and overall penetration being low. 

"We expect 6 per cent CAGR revenue growth over the next three years. Enterprise has recorded a five-year revenue and EBITDA CAGR of 10 per cent and 12 per cent, respectively. We expect a 9 per cent CAGR over the next three years. Home broadband presents a multi-year double-digit growth opportunity in our view, given the low penetration levels compared to other developing countries. FWA is set to facilitate higher penetration driving its current ~7 mn base up to 13 mn by FY27 and revenue/ EBITDA CAGR of 27%/ 28%," the report added.

FWA stands for Fixed Wireless Access. 

Valuation

The brokerage notes that with the industry set to emerge stronger over the next three years with historic high-free cash flows and +20% return ratios, it believes Bharti Airtel's valuation is inexpensive. Hence, the brokerage has initiated coverage on the stock with a BUY rating and DCF-based SoTP price of Rs 1,505, corresponding to 9.6x/8.1x FY26E/27E EV/EBITDA.