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Buy This Largecap Telecom Stock For Sharp 39% Return, Raised Rs. 1 Trillion: Says Top Brokerage

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Top brokerage firm Prabhudas Lilladher suggests investors to buy the stock of Bharti Airtel, for a sharp 39% return. The brokerage firm thinks that Bharti's leadership position in the enterprise segment with 32% revenue market share will ride on expanding market size, that is around 2x to Rs. 700bn by 2025 given its presence in IOT, CPaaS, data centre etc.

 

Stock To Buy: Target Price

Stock To Buy: Target Price

The Current Market Price (CMP) of Bharti Airtel. is Rs. 740. Prabhudas Lilladher has estimated a Target Price for the stock at Rs. 1032. This stock has the potential to give a 39.45% return, in the upcoming 1 year. It is a large-cap stock with a market capitalization of around Rs. 430,570 crore.

Stock Outlook 
Current Market Price (CMP)Rs. 740
Target PriceRs. 1032
Potential 1 year return39.45%
52 week high share priceRs. 781.80
52 week low share priceRs. 628.75
Financial Result
 

Financial Result

Bharti had the highest Adjusted Gross Revenue (AGR) in Q1FY23 and last one/two-year growth was 25.1%/30.3% vs Jio's 20.6%/18.7%. Led by ARPU and customer addition, EBIDTA of Indian/Africa mobile business is expected to grow at a ~23.8%/13.4% CAGR over FY22-25E. Prabhudas Lilladher stated, "We expect strong 33.7% CAGR in home services business which includes fixed line and broadband services. We expect ~33.4% EBIDTA CAGR over FY22-25E for Homes services business of fixed line + broadband and ~18.8% growth for enterprise segment. DTH business will likely witness muted growth due to pressures on ARPU growth and hence we expect -0.9% EBIDTA CAGR over FY22-25E."

Stock Advantages: Prabhudas Lilladher

Stock Advantages: Prabhudas Lilladher

Giving a buy rating, Prabhudas Lilladher said, "We initiate coverage on Bharti Airtel Ltd (Bharti) with 'Buy' rating at SOTP based TP of Rs. 1,032. We believe Bharti is a compelling play on multiple growth opportunities in emerging digital economy given 1) strong brand presence across mobile, enterprise business, home services, DTH and Africa business, 2) focus on attracting high quality discerning customers for ARPU expansion (ARPU at Rs. 266 in FY25E v/s Rs. 163 in FY22), 3) digitization and innovation with supportive government policies and 4) affordable 5G rollout wherein Bharti will use existing 4G infrastructure with 3.5GHz spectrum acquired recently. We expect Bharti's consolidated EBIDTA/PBT to increase at 21.8%/84.2% CAGR over FY22-25E. We expect ROE to improve to ~22.1% for FY25E from 6.9% in FY22E."

Bharti Airtel's 5G plan

Bharti Airtel's 5G plan

"5G in India is anticipated to be a Rs. 580-1300bn opportunity by CY27 across connectivity and enterprise market. Bharti's 5G plan will ride on use of existing 4G infrastructure along with 3.5GHz of mid-band spectrum (acquired recently). Additionally, the company has raised around Rs. 1trn through various financial instruments and stake sale in businesses (Airtel Africa and tower assets), which along with improving fundamentals has cut Bharti's Net debt/EBIDTA (ex lease) to 0.5x for FY25E from 2.1x in FY22. We expect FCF of ~Rs. 398bn for FY25E with reduction in net debt to ~Rs. 548bn," the firm added.

Expected growth in Telecom sector

Expected growth in Telecom sector

India's telecom sector is expected to enter into a strong growth phase over FY22-25E, on back of industry consolidation and increasing discipline on ARPU. Led by supportive government policies, we expect sector's wireless revenue to increase at 17.7% CAGR to Rs. 2.9trn over FY22-25E, aided by 17.7% CAGR in ARPU from Rs. 134 to Rs. 219. We believe that Jio and Bharti will control 72% and 84% market share of sector's subscribers and revenue in FY25E against FY22 levels of 68% and 78% respectively. However Vodafone idea (VI) and BSNL's market share may further reduce, due to weak balance sheet besides limited financial bandwidth to upgrade the network capacity, the firm stated.

Company Portfolio:

Company Portfolio:

Bharti Airtel Limited is a leading global telecommunications company operating in 18 countries across Asia and Africa. It offers an interesting play of multiple growth opportunities across Mobile, Home services (broadband, fixed line telephone), DTH and Africa business (voice, data cloud etc) with over 491mn subscribers across India and other fast growing under-penetrated geographies. The company has entered a virtuous cycle, as all its major segments are poised to benefit from respective industry tailwinds.

Disclaimer

Disclaimer

The above stock was picked from the brokerage report of Prabhudas Lilladher. 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.

Story first published: Tuesday, September 6, 2022, 13:53 [IST]
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