Bharti Airtel Share Price Could Double In 3 Years Time, Says Jefferies

Bharti Airtel has been under pressure due to hefty AGR dues and tough competition from Reliance Jio. The telecom operator reported a consolidated loss of Rs 5,237 crore for the March-ended quarter, largely on account of statutory dues. However, Airtel has been seeing an improvement in its ARPU (average revenue per user) which rose 14 percent from Rs 135 in Q3 (December 2019) to Rs 154 in Q4. Voice usage per customer also increased by 7.5 percent to 965 million against 898 million in the previous quarter.

On account of strong core operational performance, global brokerage firm Jefferies believes that Bharti Airtel's share price could double in 3 years time.

In a recent report, the brokerage said that the stock's fair value could range between Rs 840-1,110 in the financial year 2022-23, which amounts to a 50 to 100 percent upside in 3 years. It also reiterated a 'buy' call on the stock with the 12-month target at Rs 660.

As the key beneficiary of the rise in tariffs and ongoing consolidation in the Indian telecom space, Jefferies expects Bharti Airtel's mobile revenue to double over FY20-25 to $38 billion.

"A comparison of mobile ARPUs/revenues of over 25 countries reveals that India's mobile revenues/GDP ratio at 0.7 percent is among the lowest versus countries with similar per capita GDP, implying scope for a rise in ARPUs," the report noted.

Further, due to the possibility of telecom space in India becoming a duopoly (with Airtel and Jio as the main players), the company's revenue/GDP ratio should rise from the 0.7 percent levels in FY20 to at least 1 percent by FY25, the brokerage has estimated.

"This, in turn, should drive a doubling of sector revenues from an estimated $19 billion in FY20 to $38 billion in FY25, assuming a 5 percent decline in nominal GDP in FY21 and then a 10-11 percent rise every year after that. Assuming no further rise in subscribers, this would imply a doubling of sector ARPUs from Rs 108 per month in FY20 to Rs 214 per month in FY25," the report explained.

Further, Jefferies said that ARPUs could rise by 3-5 percent annually beyond FY25, in line with trends across FMCG and two-wheelers over the past decade as pricing discipline may sustain.