Bharti Airtel shares surge after preferential issue announcement. Should you buy?

Shares of Bharti Airtel surged over 1.7% in Tuesday's opening deals to ₹701 apiece on the BSE in an otherwise weak market after the company announced that the board will consider and evaluate the proposal for issuance of equity shares through preferential issue.

“Bharti Airtel's announcement to consider an equity issuance on a preferential basis has come as a surprise as there is no immediate need for capital, in our view. An issuance to usher in a strategic investor that boosts its enterprise/digital offerings will be seen positively; however, any large acquisitions will be viewed negatively,” said Jefferies in a note.

Bharti Airtel on Monday notified the exchanges that its board will consider a proposal for issuance of equity capital through a preferential issue on 28th January. The quantum of the capital raise or the timing is not clear at present. The issuance will be to non-promoters implying that promoter stake in the company will get diluted post the potential issue.

“The recent tariff hikes should help Bharti deliver 20% YoY growth in consolidated revenues in FY23 - its highest in a decade. Given the strong growth outlook, we maintain our positive view on the stock see any related pullbacks as a buying opportunity,” Jefferies' note added.

While the potential capital raise will be a near-term overhang, with strong growth outlook, the brokerage has maintained its Buy rating on the telecom stock with a target price of ₹925 apiece.

"In our understanding this could be a move to bring in a strategic investor to help capitalise the company before the 5G spectrum auctions that are due for mid of 2022. The company would need a huge war chest to go ahead with 5G investments. Overall its a very positive move given that the company did not go the debt route. Going forward the strategy is to deleverage the balance sheet," said Ujjawal Kumar, Research Analyst, Green Portfolio.

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