Home/ Markets / Stock Markets/  Bharti Airtel shares are Jefferies' top pick, sees strong upside on the telecom stock

The tariff hike is driving strong revenue and Ebitda growth in the telecom sector. Analysts at Jefferies believe that Bharti Airtel is the best way to play rising mobile tariffs in India and remains the brokerage's top stock pick in the sector. 

The brokerage has Buy rating on Bharti Airtel shares with a SOTP-based price target of 880 apiece, implying a potential upside of about 28% from current stock level. Though, key risks as per Jefferies are delays in tariff hikes, Vodafone Idea's (Vi) fundraising and potential overspending on spectrum.

In 4QFY22, revenues of Top-3 telcos rose by 8% on a sequential basis, led by Bharti Airtel, which gained 60 basis points (bps) market share. Tariff hikes drove a 8-11% QoQ average revenue per user (ARPU) uptick, while pickup in gross adds indicates acceptance of tariff hikes. 

The management commentary around pricing remains encouraging and further tariff hikes would drive strong revenue/ Ebitda growth for the sector, the note highlighted.

A pick-up in gross subscriber adds for all three telcos was a key positive from the quarter, indicating acceptance of tariff hikes. Churn levels were also steady, with Bharti witnessing some moderation in churn. 

Bharti Airtel was the only telco to gain subscribers adding 3 million net subscribers in the quarter, while both Reliance Jio and Vodafone Idea witnessed 3-11 m decline in subscribers base in 4Q.

ARPU rose by 8-11% quarter-on-quarter (QoQ) for the three telcos and have increased by 14-17% over the last two quarters. Jefferies expects Arpus to further benefit from residual impact of the 20% tariff hikes in subsequent quarters.

While SIM consolidation is impacting net subscriber adds, there is a wider acceptance of new tariffs. Management commentary around tariffs remains encouraging as the focus is now on market expansion rather than market share gains.

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

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Updated: 03 Jun 2022, 01:26 PM IST
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