 "Bharti Airtel stock soars 6%, logs sharpest intra-day rally in 18 months")
The stock of the country’s second largest telecom operator Bharti Airtel rose 5.7 per cent to Rs 1,648.70 on the BSE in Friday’s intraday trade, recording its sharpest intraday rally in 18 months. Earlier, on May 31, 2023, the telecom services provider with 352 million wireless customers in India and 157 million subscribers across 14 African countries had surged 8.5 per cent. The stock had hit a record high of Rs 1,778.95 on September 26 this year.
S&P Global Ratings had recently revised its rating outlook on the company to positive from stable on earnings strength. At the same time, the rating agency affirmed its 'BBB-' long-term issuer credit rating on the company. It also affirmed ratings on the debt the company issued or guarantees.
The rating agency expects Airtel’s earnings and cash flows to rise over the next 24 months, benefitting from the industry-wide hike in mobile tariffs in India. It expects Airtel's leverage to therefore improve beyond its threshold for a higher stand-alone credit profile in the financial year 2026. Capital expenditure at the India-based telecommunications company is also likely to ease during the period, it added.
Airtel's India earnings will see strong growth over the next 24 months. This will be largely driven by a hike in mobile tariffs in the country earlier this year. Prices of the company's mobile plans were up 10-21 per cent effective July 4, 2024.
“We project earnings before interest, tax, depreciation and amortization (Ebitda) from Airtel's Indian operations will rise 18-20 per cent in the financial year 2025 (year ending March 31, 2025), and by a further 12-15 per cent in the financial year 2026. Most of this growth will come from the mobile segment,” S&P Global Ratings said in a note.
The rating agency also anticipates higher earnings from Airtel's home and enterprise segments, owing to increased uptake of home broadband and enterprise digitalisation. Most of the benefits of the tariff hike will likely materialise within the next two quarters as existing plans play out their remaining validity periods.
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The rating agency said the telcos will likely lose some subscribers after the tariff hike because the higher costs will push some consumers to reduce the number of SIMs they hold. But trading down to lower-priced plans with smaller data allowances will likely be minimal because data consumption habits are sticky, it added.
ICICI Securities has a ‘buy’ rating on Airtel with a target price of Rs 1,900 per share as the company continues to maintain its relative strength among peers in a consolidated industry. The brokerage believes that the industry’s leading average revenue per user (Arpu), wireless margins, and cash flows are reflective of a formidable digital ecosystem offering and overall efforts through premiumisation and higher wallet share.
Airtel continues to report industry-leading Arpu for India mobile services with the benefit of tariff repair expected to fully accrue in the next two quarters. Sharekhan believes that tariff repairs, greater traction from new and adjacent businesses, and moderation of capex intensity would aid in further deleveraging the balance sheet.
Given Airtel’s strong recovery potential backed by strong conversion, rising digital portfolio, and moderated capex, analysts at Axis Securities have maintained a ‘buy’ recommendation on the stock.
The company has a strong focus on quality customers with increasing Arpu and revenue. The management is confident of gaining industry-leading growth backed by robust rural penetration and a superior services portfolio. The capex, however, will remain moderate in FY25, it added.