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Business News/ Markets / Stock Markets/  Bharti Airtel announces mega rights issue. Should you buy shares now?

Bharti Airtel announces mega rights issue. Should you buy shares now?

Bharti Airtel shares were trading over 1% higher to ₹600 apiece on the BSE in Monday's early deals

Bharti Airtel board approved up to ₹21,000-crore fundraising via rights issue (REUTERS)Premium
Bharti Airtel board approved up to 21,000-crore fundraising via rights issue (REUTERS)

Telecom service provider Bharti Airtel's board on Sunday approved raising up to 21,000 crore by way of rights issue, at a price of 535 per share amid plans to expand its network and prepare for the launch of 5G services. Bharti Airtel shares were trading over 1% higher in early deals, later surged to over 5% at close after Sunil Mittal addressed the investor call.

Mittal said that the telco will not shy away from raising tariffs, also expects ARPU to trend towards 200 in this financial year. He also said that there are no plans to sell any promoter stake. Mittal further clarified that Airtel will not use rights issue fund to increase stake in Indus Towers.

In a BSE filing on Sunday, Airtel said that the "...board approved the issuance of equity shares of face value of 5 each of the company on rights basis to eligible equity shareholders of the company as on the record date (to be notified later), of an issue size of up to 21,000 crore".

Shareholders will be eligible to buy one share for every 14 held in the telecom firm. The timelines are not mentioned, but 25% will be paid upfront and the rest will be called as per requirement over the next 36 months. Bharti founder-chairman Sunil Mittal and others in the founder group will also participate in the share purchase. 

Brokerage firm Motilal Oswal said that this capital raise is surprising as the management in its last few calls stated that its leverage and liquidity position is comfortable and self-sustainable, with healthy FCF generation in all verticals, thus indicating no additional capital requirement. “The unexpected capital raise may cause a negative reaction in the short term, but we see a good earnings growth opportunity over the next 12 months," it said in the note. 

The brokerage has a ‘Buy’ rating (target price of 720 per share) on large scale opportunity in the next 2-4 quarters and it sees the telecom operator well placed to gain. 

Another brokerage Emkay Global in a note on Saturday said that Airtel stock has outperformed (by 22-37bps) the Sensex in the last 2-3 years, after tariff hikes and amid the possibility of a duopolistic market post substantial weakening of Vodafone Idea's financial position. It has a ‘Buy’ rating on the stock with target price of 730.

“Bharti remains our preferred bet in the telecom space given superior and consistent execution across business segments and benefits accruing in the India wireless business with the weakening of VIL. Having said that, the tariff hike is of supreme importance for strong FCF generation. Sustained re-rating of Bharti hinges on tariff hike, strict control over capex and capital allocation," Emkay said.

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Published: 30 Aug 2021, 09:50 AM IST
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