Buy Bharti Airtel With A Target Price of Rs. 920 Says Motilal Oswal

Growth in consolidated EBITDA on 2QFY22

Motilal Oswal in its research report has said that "On 22nd Nov'21, Bharti announced a 20% price hike, effective 26th Nov'21, across its prepaid plans, which contributes 85% to India Mobile revenue (15% is postpaid). The tariff hike comes nearly eight quarters from its last hike (Dec'19), even as industry participants have been calling for the same since the last 12 months. With a 20% increase in prices and expected ARPU at INR181, we expect incremental revenue/EBITDA contribution to its India Mobile business to be INR103b/INR72b, i.e. 16%/22% growth, which works out to a 13% growth in consolidated EBITDA on 2QFY22 annualized basis. On an FY24E basis, we revise higher our consolidated EBITDA estimate by 10% to INR821b."

The brokerage has further claimed that "Bharti's consolidated EBITDA (2QFY22 annualized) after capturing the 20% tariff increase would be INR624b. Adjusting for CAPEX, interest, tax, and Ind AS 116, it would be ~INR200b, thus implying a 5% FCF yield. It has the potential to grow EBITDA by more than 20% over the next two years on the back of mix-led ARPU improvement and subscriber additions. It does not factor in an additional 13% EBITDA opportunity due to potential market consolidation over time, leaving additional growth levers."

Buy Bharti Airtel with a target price of Rs. 920

Motilal Oswal in its research report has reported that "Without capturing market share gains, the stock is trading at 7x consolidated EBITDA on a one-year forward basis, while the implied India business is trading at 8.5x. This doesn't capture an additional 13% EBITDA opportunity from market consolidation and the re-rating potential due to an improving FCF/RoCE profile. We expect 24% CAGR in consolidated EBITDA over FY21-24E on the back of 31% CAGR in Mobile India EBITDA, aided by ARPU growth as a result of the tariff hike."

According to the brokerage's call "We see potential for a re-rating in both the India and Africa business on the back of steady earnings growth. We value Bharti on a Sep'23E basis, assigning an EV/EBITDA of 10x/4x to the India Mobile/Africa business, arriving at a SoTPbased TP of INR920. We maintain our Buy rating."

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.