Airtel fall overdone, reversal on the cards

Mumbai: Two leading brokerages said the 20 per cent decline in shares of Bharti Airtel in the last one month is overdone. CLSA and UBS maintained buy on the stock on Wednesday, with their price targets projecting as much as a 70 per cent upside. The stock ended down 3.3 per cent at Rs 420.9 on Wednesday.CLSA said its sensitivity analysis reveals that Bharti’s stock more than factors in the adjusted gross revenue burden risk of matching Jio’s post-paid and over-the-top offers and tariff hike uncertainty, said CLSA, which has a target price of Rs 715 on the stock.“There is no renewed tariff aggression from Jio, and Bharti market share has upside potential. Bharti active subscribers are ahead of Jio, while the stock valuation is at a 25-50 per cent discount to past EV/Ebitda multiples and Jio deal valuations,” said CLSA.Meanwhile, UBS’ Evidence Lab results showed that Airtel is making steady progress and the risk-reward is attractive.Airtel’s share as primary SIM has increased in the last 12 months with Vodafone India, in particular, losing share and seeing maximum downgrades after the tariff hike in December 2019, said UBS. The brokerage has a buy rating on Bharti Airtel and raised it to Rs 705 from Rs 655.“Bharti Airtel remains well capitalised and is generating positive FCF (free cash flows) making it our preferred pick in India telcos. Recent weakness in Airtel stock belie the steady improvement in Airtel’s RMS and financial performance as evidenced in recent quarters,” said UBS.The correction in the stock started after the Supreme Court directed AGR payments to be made based on the Department of Telecommunications dues rather than on operators' self-assessments. Highlighting advantage over Jio, CLSA said Bharti’s 32 per centrevenue market share has not seen any loss since Jio’s entry and ramp-up to 38 per cent share. 78414627“Bharti’s execution leaves upside potential to our forecast 200 bps share loss by FY23 because Vodafone Idea burdened by US$19 billion in spectrum and AGR payments (about 90 per cent higher than Bharti) is still vulnerable to share loss,” said CLSA.The foreign brokerage said Bharti’s stock is trading at a 25 per cent discount to its five-year average and it believes that Bharti is re-entering an outperformance phase.

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