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Why Bharti Airtel shares hit new 52-week high? Brokerage raises target price

Tariff hikes alongside 5G rollout are seen as optimistic for Bharti Airtel. (Bloomberg)Premium
Tariff hikes alongside 5G rollout are seen as optimistic for Bharti Airtel. (Bloomberg)

  • In Q2FY23, Bharti posted a consolidated net profit of 2,145 crore up by 89% yoy, while revenue from operations rose 21.9% yoy to 34,527 crore. EBITDA climbed by 6.7% yoy to 17,721 crore, while margins improved to 51.3%.

Telecom giant, Bharti Airtel shares ended near a fresh 52-week high on Monday. The heavyweight stock recorded a nearly 2% upside on exchanges on the company's 5G services rollout in some parts of the country. Airtel has also made a tariff hike in states like Haryana and Odisha circles in recent times, which ICICI Securities experts believe is a stunning move. Year-to-date, Airtel shares have climbed by a whopping 23% on Dalal Street.

On BSE, Airtel shares closed at 851.20 apiece up by 1.70%. The stock hit a new 52-week high of 852.50 apiece on the exchange earlier in the day. Its market cap is around 4,73,542.28 crore.

On Monday, in its exchange filing, Airtel announced the launch of its cutting-edge 5G services in Guwahati - Gateway to North East India. Airtel 5G Plus services will be available to customers in a phased manner as the company continues to construct its network and complete the rollout.

Last week, Airtel announced the deployment of its cutting-edge Airtel 5G Plus service at the Lal Bahadur Shastri International Airport, Varanasi, making it the first airport in the state to enjoy ultrafast 5G service.

Now, Airtel's 5G services are available in Delhi, Mumbai, Guwahati, Chennai, Bengaluru, Hyderabad, Siliguri, Nagpur, Varanasi, Panipat, and Gurugram. The 5G Plus is expected to bolster the entire portfolio of services that Airtel offers.

Additionally, Airtel made a market-testing tariff hike move in Haryana and Odisha circles. Now, the company's minimum recharge pack of 155 in the two circles offers unlimited voice, 1GB of data, and 300 SMSs. Earlier, the minimum recharge price was 99 for 28 days in the two circles.

Tariff hikes alongside 5G rollout are seen as optimistic for Bharti Airtel.

In its research note dated November 20, ICICI Securities analysts on the tariff hike in Haryana and Odisha circles, said, "this is indeed a bold move and the tariff hike quantum is beyond our best-case scenario. It shows Bharti’s strong urge to drive ARPU to Rs300 (from Rs190 in Q2FY23) and that the move is not just another for the bucket list. This is also a message/offer to competition that – Bharti is ready to walk the talk on tariff hikes."

Explaining further ICICI Securities report added that "we are building-in much smaller tariff hikes of 5-6% pa going forward in our assumptions, and the quantum of tariff hike intention shown by Bharti through the trial in Haryana and Odisha, is beyond our best-case assumption and means our EPS estimates have huge upside risk."

Bharti has taken the industry’s first step in implementing a tariff hike in the current market situation. Now, a competitive reaction from other telcos is expected.

If the competition follows Bharti in effecting price hikes, the stock brokerage's report added that "the industry will have

established a massive pricing power, which has not been seen in the past 10+ years. And this should position India telecom very differently than global telco peers who have slow-growing revenue and depressed (and falling) RoICs."

Further, on Airtel, the report added, "the development leads us to increase our EV/EBITDA multiple for the company’s India business to 11.5x FY24E (earlier: 10.5x). Accordingly, we raise our target price for the stock to Rs970 (earlier: Rs875). Upgrade to BUY (from Add). Our earlier one-notch downgrade was in fear of depleting FCF generation on 5G CAPEX, and lower belief in the likelihood of tariff hike, which has now been addressed."

Among the cons, the ICICI Securities report did point out that Bharti's move will significantly hamper affordability of telecom services. Further, they stated that they are in favour of smaller and frequent tariff hikes versus one large tariff hike as it would allow the consumer to easily absorb the higher prices. Also, Bharti’s calculated risk, if successful, will accelerate the risk of more competition/new entrants into the market, additionally, this should also significantly improve prospects for VIL.

In Q2FY23, Bharti posted a consolidated net profit of 2,145 crore up by 89% yoy, while revenue from operations rose 21.9% yoy to 34,527 crore. EBITDA climbed by 6.7% yoy to 17,721 crore, while margins improved to 51.3%. The company's average revenue per user (ARPU) increased to 190 in Q2FY23 from 183 in Q1FY23.

 

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

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