Airtel has 60% Upside Potential from Current Levels, 2 Big Reasons

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Bharti Airtel (434 Rs.), the second largest mobile network operator in India and the second largest mobile network operator in the world had over 43 crore customers across its operations at the end of March 2020. Airtel’s 4G user base stood at 148.84 million in June (higher than Jio) as compared to 143.55 million in May.

Source: https://www.statista.com/

As most people worked from home, the wireline broadband subscribers also rose by 2.29% in June and Reliance Jio and Bharti Airtel added the maximum number of wired users. Airtel operates in 18 countries across South Asia and Africa, and also in the Channel Islands.

Airtel is 2nd Ranked telecom operator in Africa

Despite losing customer due to intense competition with Jio, Airtel’s cash flow from operations have been quite stable.

2 Big Reasons why Airtel has 60% Upside Potential from Current Levels.

1) Technical Analysis:

Look at the chart closely.

Observations:

1) Blue line:  The stock has bounced back from its support level of 379 Rs. which was the days low of 19 March 2020.
2) Green Circles: CCI, ADX and MACD all indicators are showing that the stock is on a verge of a fresh breakout. (Learn Stock Technical Analysis here)

a) A few days back Bernstein initiates outperform rating on Bharti Airtel share with a target price of Rs 600. Here is the snapshot of the report:

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Source: Bernstein Research

The target price is 40% away from the current price. Other brokerage houses like

b) Citi is bullish and has a buy rating on Bharti Airtel with a target price of Rs 690, which implies 65% potential upside from current levels. Citi believes the pessimism on the stock is overdone and sees market share gains or tariff hikes, recovery in 4G subscriber additions to aid average realization per user and digital strategy as three positive catalysts for the stock in the near-term.

c) DART is also bullish and given buy rating to Bharti Airtel with a target price of Rs 605. The brokerage reiterates BUY on Bharti with TP of Rs 605 @ 10/7x Sep22E EV/EBITDA for India Wireless / Africa. Bharti’s TP sensitivity to ARPU is significantly higher viz. ~Rs 40/sh for every Rs 10 change in ARPU @ 10x EV/EBITDA.

d) CLSA On Bharti Airtel Buy rating maintained Price target of whopping Rs 715

Increasing stake:

As of Sept, 2020. Promoters held 56.23% stake in the company, while FIIs held 17.57%, DIIs 24.18%.

From June 2019 to Sept 2020 MFs have increased their stake from 8.33% to 14.36%.

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Key Risks:

1) Debt: Bharti Airtel had 83,415 Cr. in 2015 and it has increased to whopping 148,228 Cr.

2) Intense competition: Jio Platforms recently raised Rs 1,52,056 crore from 13 investors, including Facebook, Google, General Atlantic, Intel Capital and Qualcomm Ventures. Jio is looking to garner more market share, and it might not hike the tariff even if the other two do. Given the deep pockets and recent mega fundraising, Jio could continue to remain competitive on the pricing front.

3) If the stock breaches its support level of 370-380 then it may slip further to a larger extent.

If you wish to invest in Telecom sector then at this level, high risk-high reward investors can consider buying Bharti Airtel.

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Akshay Seth
Research Analyst (SEBI Regd.)
Linkedin | akshay.equity@gmail.com

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Akshay Seth is a SEBI Registered Research Analyst. Has taken sessions on 'Equity Analysis' in IIT Madras, IIT Delhi, IIT Guwahati, IIT Mandi, NMIMS Mumbai. Can be contacted for Stock Advice and Learning Stock Analysis (Fundamental & Technical). +91 8826423141 | info@equityboxx.com
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