Google on Friday announced a $1 billion investment into telecom giant Bharti Airtel, picking up a 1.28% stake in the company. The internet giant’s massive investment is being seen as a positive for the telco as India gears up for the 5G era. “Airtel is already using Google’s 5G-ready Evolved Packet Core and Software Defined Network platforms. It now plans to explore scaling up deployment of Google’s network virtualization solutions to deliver a better network experience,” said analysts at Motilal Oswal in a note. The 5G era is expected to usher into India this year with the spectrum auction expected soon. Bharti Airtel shares were trading at Rs 729 per share on Monday, up 1.92%.
How the deal benefits Airtel
Analysts at Motilal Oswal expect that Airtel will leverage Google’s tech platform to explore the monetization of its digital offering. In the brokerage firm’s view, Airtel could leverage the opportunity of a large pool of feature phone subscribers in the market through Google-enabled affordable devices, and leverage Google’s 5G technology solutions to offer use cases to SMEs/consumers, including Cloud services. “Over time it can derive a big value through new growth areas,” they added.
The massive investment in Bharti Airtel, according to Emkay Global, shows the tech giant’s belief in the telco. “In our view, Google’s investment, though relatively small, validates the franchisee’s strength and the global tech giant’s belief in it,” they said. The agreements will include investments aimed at scaling up Airtel’s offerings that cover a range of consumer devices via innovative affordability programs and other offerings aimed at accelerating access & digital inclusion in the Indian digital ecosystem,” analysts added. Emkay Global has upgraded the stock to ‘Buy’ from a ‘Hold’ rating.
With similar views, ICICI Direct said that the investment outlines global tech giants’ reaffirmation that India is a two strong player market and a strategic tie-up is key. Google has now invested in both Reliance Jio and Bharti Airtel. The internet behemoth holds a 7.73% stake in Jio and a 1.28% stake in Bharti Airtel.
‘Buy’ say analysts
Motilal Oswal analysts value Bharti Airtel’s India/Africa Mobile business at a FY24E EV/EBITDA of 10x/4x, arriving at our SoTP-based target price of Rs 920 per share. “We see a potential re-rating upside in both the India and Africa businesses on the back of steady earnings growth in each region from a tariff hike, ARPU mix improvement, and market share gains,” they added. ICICI Direct has a ‘Buy’ rating and a target price of Rs 860 per share. “Favourable industry structure of three players (two being strong), government relief, tariff hike, and fundraise puts Airtel in a sweet spot to maintain its relative strength among peers with a formidable digital ecosystem offering,” they added.
Analysts at Emkay Global have upgraded the stock to a ‘Buy’ rating post the Google investment. The target price has been revised upwards to Rs 825 per share from Rs 800 earlier. This translates to an upside of 13%.
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