Brokerages gung-ho on Bharti Airtel stock after AGR verdict, most say ‘Buy’; check upside

After the AGR verdict that gave telecom companies 10 years to pay their dues, Bharti Airtel’s share price has gained over 8%.

Telecom major Bharti Airtel has maintained its position as a hit favourite post the Supreme Court’s AGR verdict. The stock has been favoured by market participants for its strong position when compared to the weaker Vodafone Idea. After the AGR verdict that gave telecom companies 10 years to pay their dues, Bharti Airtel’s share price has gained over 8%. To add to this, brokerage firms see a massive 27% upside for the telecom giant. Analysts said that in the case of Vodafone Idea succumbing to the price war in the sector and mounting dues, Bharti Airtel will benefit from an increased market share.

The Average Revenue Per User (ARPU) for Bharti Airtel in the last quarter rose to Rs 157, an industry leading number. While the firm will have to pay an additional Rs 1,376 crore in AGR dues for purchasing Videocon’s entire spectrum, it has escaped liabilities arising sharing Aircel’s spectrum. “We expect Airtel to easily meet the cash outflows of Rs 4,638 crore given the current liquidity, comfortable cash generation trajectory and regular ARPU increase on 4G conversions,” said ICICI Direct in a note. The brokerage firm has a ‘Buy’ call on Bharti Airtel with a target price of Rs 700 per share. 

According to reports, telecom companies can still approach the Supreme Court to file a review and curative petition asking the court to revisit the payment timeline and seeking the elimination of SUC-related AGR liability. Motilal Oswal estimates a 40% reduction in total amount if SUC-related AGR liabilities are removed. “We expect Bharti Airtel to be able to manage the payment with FCF post-interest of over Rs 10,000 crore/Rs 20,000 crore in FY21/FY22, with no tariff hike built-in and net debt of Rs 1.10 lakh crore in FY21, including the AGR liability,” said Siddhartha Khemka, research analysts, Motilal Oswal. The AGR ruling will impact the balance sheets of telecom companies across the board and a tariff hike could be their only solution. Motilal Oswal has a target price of Rs 700 apiece on Bharti Airtel.

Edelweiss Securities goes a notch higher than peers, pinning a target price of Rs 712. It estimates an annual payout of Rs 3,500 crore for Bharti Airtel. Prior to the verdict, global brokerage and research firm Julius Baer also gave a ‘Buy’ call for Bharti Airtel with a target price of Rs 650. Julius Baer, said that Bharti Airtel’s strong presence in Africa, the work from home trend are in favour of the telco. “Following the disruption, Bharti will be a big beneficiary of the

consolidation in the sector,” it added. Other recommending investors to buy Bharti Airtel include Emkay Global that is bullish on the stock owing to its better subscriber mix, potential market share gain in the postpaid segment, and clear flow-through of tariff hikes. Kotak Securities is also bullish on Bharti Airtel with a fair value of Rs 710 per share.