Analysts see room for more gains in the stock on expectations of a tariff hike, higher average revenue per user (ARPU) – a measure of earnings generated from each user – and lower capex.
“Since the earnings are expected to move up by 16-18% in the next two years, there is an upside potential of around 18% this year (for the stock) with limited scope for downside,” said Hemang Jani, director of Finazenn, an investment advisory.
BNP Paribas said that the decline in Bharti’s net profit was due to currency devaluation in Nigeria and the lowered earnings estimates are also due to reduced Africa estimates. “The operational metrics of the India mobile business of Bharti Airtel were strong, which is why the net profit miss is largely discounted,” said Kunal Vora, head of India Equity Research at BNP Paribas, which has a price target of ₹1,450 on the stock. “The expectation of a tariff hike after the elections is also being seen as a positive.” Vora said that historically the tariff hikes take place every two years but have been delayed this time due to the elections.
The tariff hike is likely to be around 15-20% in the next two years in a phased manner, said Jani. “This wasn’t possible earlier since Reliance Jio wasn’t keen on a tariff hike,” he said.The price targets of various brokerages imply Bharti shares could gain between 4% and 22%. So far this year, the stock has advanced 32.7% against an up move of 1.9% in Sensex.“The tariff hike along with reduced capex is expected to lead to stronger cash flows and deleveraging of their balance sheet which we see as a positive for the company,” said Vora. “Historically, the tariff hike has been around 20%.”Some analysts said the share valuations of Bharti are rich after the recent gains.
HSBC said that the growth drivers for the company remain intact and the stock seems to be valued fairly, pricing in the benefits from mobile tariff hikes and lower capex intensity.
“We maintain our hold rating on the stock as we think it is pricing in benefits from the mobile tariff hikes and lower capex intensity,” said the brokerage, while setting a price target of 1,220 on the stock.
It’s the lack of investment options in the fast-growing telecom sector that makes Bharti a strong bet, said analysts.
