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Why Did Bharati Airtel Surge Despite Massive Q1 Loss?


While most stocks on BSE and NSE were bleeding red this week, shares of Bharati Airtel continued rising. On Thursday, before the announcement of its first quarter financial results, the company's stock surged by over 8 percent.


Why Did Bharati Airtel Surge Despite Massive Q1 Loss?

On Friday, the share price spiked, gaining more than 8 percent from its previous close to an intraday high of Rs 354.95. On Thursday, it closed at Rs 323.90 on NSE, before the company posted a higher than expected loss of Rs 2,866 crore for the June-ended quarter.

Further, the telecom operator's consolidated revenue from operations rose by 4.7 percent on a year-on-year basis to Rs 20,738 crore.

The companies losses widened as its number of customers fell from 45.66 crore in June 2018 to 40.37 crore in June 2019 and also on account of depreciation of 3G equipments or costs on upgradation of its 4G network.

Despite the losses, its ARPU (average revenue per user) for the quarter rose to Rs 129 as against Rs 105 in the same quarter of the previous year and Rs 123 in the March quarter.

The increase in share price was due positive recommendations from various brokerages. CLSA maintained a 'buy' call on Bharati Airtel, however, cut its price target from Rs 415 to Rs 390. Morgan Stanley was equal-weight on the stock with a target of Rs 360 apiece. Bank of America Merrill Lynch (BofAML) recently upgraded the stock's rating to 'buy' from 'neutral' and increased price target to Rs 400 per share from Rs 360.

The brokerages had various positive observations from the results.

  • The higher than expected loss was due to higher depreciation and FX/derivative losses. The Q1 loss included a large exceptional charge of Rs 1,590 crore comprising incremental provision towards indemnities given to pre-IPO investors in Africa and IPO expenses, JM Financial said.
  • Airtel's ARPU saw a 5 percent rise (from the previous quarter) despite the loss and prevailing competition.
  • 4G subscriber base saw a robust addition of 8.4 million in Q1.
  • BofAML said that post the recent rights offering and Africa IPO, they expect Airtel's balance sheet to strengthen and also considers it to be in a good position to improve its momentum in the core cellular business.
  • BofAML sees Airtel well-positioned to capitalize on any weakness at Vodafone Idea (VIL) as it focuses on integrating its networks post-merger and expect its market share to remain stable at 30-31 percent from financial year 2019-20 to 2023-24.

Read more about: airtel
Story first published: Friday, August 2, 2019, 15:52 [IST]
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