Why Did Bharti Airtel Shares Gain In Trade On Friday Despite Massive Q2 Loss?

On Thursday, Bharti Airtel reported a significant loss of Rs 23,044 crore for the September-ended quarter on making provisions worth Rs 28,450 crore towards adjusted gross revenue (AGR) dues. Meanwhile, Vodafone Idea reported its biggest-ever quarterly loss of Rs 50,921 crore on the same day.

The losses of the two telecom companies were largely on account of the provisions they made towards the payment of dues on AGR after a recent Supreme Court ruling was made in the favour of Depart of Telecom, piling on their existing woes of competitive pricing.

However, shares of Bharti Airtel spiked in trade on Friday to close 9.24 percent higher at Rs 396 apiece on NSE. The surprise gains made were mainly on account of positive analysts review.

Global brokerage UBS maintained a 'Buy' call on Airtel with a price target of Rs 415 per share and said that the stock is attractively valued. It further said that the capital-expenditure and AGR liabilities moved the focus away from the company's solid operating performance in the quarter.

Edelweiss Securities upped its target price on the stock on hopes that Vodafone, which is low on EBITDA (earnings before interest, tax, depreciation and amortization) generation, is likely to get out of competition, if no major measures are taken by the government to solve the AGR issues by waving of penalties, interest on penalties or other meaningful measures.

In fact, analysts believe that if Vodafone Idea's liquidation were to happen, Airtel will be in a position to take up nearly 40 percent of the telecom market, which would then become a duopoly.

If the government does not intervene or intervenes partially, making the telecom business in India a duopoly (with Jio and Airtel as the players), Airtel is to substantially gain considering its sole presence in the 2G market and strong positioning in the 4G market.