Bharti Airtel shares a long-term ’Buy’, analysts bullish ahead of Q4

Shares of telecom major Bharti Airtel settled 0.92 per cent lower at ₹760 apiece on the NSE in Monday's trade. The stock dipped nearly 7 per cent on a year-to-date basis. In the last one year, the shares have jumped 4.18 per cent.

Domestic brokerage house ICICI Securities has maintained a ‘Buy’ rating on Bharti Airtel with an unchanged SoTP-based target price of ₹960, while Motilal Oswal said its long-term 'Buy' view remains intact with a target price of ₹950 on the stock.

The telecom major has seen decent earnings growth for the last 12 quarters. However, Motilal Oswal expects the telecom firm to witness a period of soft earnings given low probability of a price hike, and high capex over the next 2-3 years given increased investments in 5G and rural densification.

Bharti Airtel stock to remain range-bound in near term

The above factors could keep the stock range-bound in the near term, the brokerage firm said. “The stock is trading at 6 times on consolidated FY25E EV/EBITDA, with the India business trading at 9 times and Africa at 3 times,” it said.

“We have factored in 13 per cent consol. EBITDA growth over FY23-25E (without factoring in tariff hike) with a 3-5 per cent FCF yield. Given the softness in profitability and increased capex, the FCF generation and deleveraging pace should moderate in the near term,” the note said.

As a result, the brokerage said that the stock could remain range-bound in the short term. "However, the improving monetisation opportunity may offset high capital intensity, driving better earnings and FCF generation in the next two years," it said.

The brokerage derived its SOTP-based target price of ₹950 based on FY25E EV/EBITDA of 10 times for the India Mobile business and 5 times for the Africa business.

Can Bharti's FCF surprise positively?

The biggest disappointment for Bharti that brokerage ICICI Securities has heard from investors is lack of FCF generation in the past, which has capped shareholder value creation.

The brokerage has highlight the reasons for Bharti's lack of FCF generation, which includes competitive intensity, costs of building spectrum portfolio, leapfrogging in technology adoption, regulatory payouts and Africa acquisition.

The heavy-lifting on most investments is behind except for 5G network rollout. "Thus, we have come a long way, and are close to crossing the line from where Bharti can possibly generate cashflow equivalent to 10% of its current market capitalisation, and this, we believe, is just two years away," it said.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.