Rs 710 or Rs 1,020? Jefferies’ base case target for Bharti Airtel shares at Rs 900. Here’s why

By admin On Mar 10, 2023

Foreign brokerage Jefferies has upgraded telecom operator Bharti Airtel Ltd to ‘Buy’, with a revised target of Rs 900 from Rs 850 earlier. Bharti’s market share gains among 4G subscribers, hikes in voice tariffs and improving tariff outlook due to the government’s support for Vodafone Idea should help Bharti drive 13 per cent growth in its mobile average revenue per user (ARPU) over FY23-25, Jefferies said on Friday.

That said, Jefferies, has cut its revenue and Ebitda estimates for Bharti Airtel by 1-4 per cent to factor in the change in tariff assumptions. Overall, it sees 16-17 per cent growth in consolidated revenue and Ebitda over FY23-25.

“Our analysis suggests a fair value of Rs 710 (no tariff hikes till Mar-25) to Rs 1,020 (one tariff hike till March 2025 Duopoly in FY24), implying an 8 per cent downside and 32 per cent upside in the worst/best case. Given this, we upgrade Bharti to BUY with price target of Rs 900 offering 16 per cent upside and implies exit multiple of 7.6x EV/Ebitda – in line with 10-year averages. Delayed tariff hike is the key risk to our recommendation,” Jefferies said.

Bharti Airtel has seen an acceleration in market share gains among active 4G users, which is evident from its 60 per cent incremental market share in the second half of 2022 against its overall market share of 30 per cent.

“This has helped Bharti Airtel improved its subscriber mix and raise its daily ARPU by 4.4 per cent over second half of 2022. With another 10.7 crore voice subscribers on its network yet to upgrade to data, Bharti’s ARPUs will likely rise by 4-5 per cent annually due to the improvement in subscriber mix,” Jefferies said.

Jefferies said after favourable market share movements in Haryana and Odissa, where Bharti had discontinued its Rs 99 plan in November, the company has extended this move to 19 circles recently contributing to over 90 per cent of its India mobile revenues.

The move will add to 2 per cent to Bharti’s revenues by June quarter of FY24, it said adding that the move indicates that Bharti is looking to boost ARPUs, even if it leads to some churn among low-ARPU subscribers.

In its bull case scenario, Jefferies expects a 15 per cent tariff hikes in FY24 and complete duopoly. Assuming 9 times multiple, this would add Rs 120 per share to base case fair value of Rs 900 per share. Jefferies SoTP based price target for Bharti Airtel in that scenario would be Rs 1,020 per share.

The downside scenario assumes a delay in tariff hikes or lower than expected market share gains. Assuming a 8.5 times multiple for Indian mobile business and no tariff hikes till FY25, price target in this scenario would be Rs 710 per share, Jefferies said.

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