iStockShares of the telecom operator gained 18% in 2022 and outperformed the benchmark Nifty50 by 14% due to its defensive characteristics, sustained market share gains, and stabilizing competitive environment.
“We consider ’s valuation as rich and see a limited margin of safety. Inflation and INR-depreciation headwinds could impact demand and lead to higher capex/interest payments going ahead,” the foreign brokerage said in a note to its clients.
Bharti Airtel is trading at 9.5 times its operating profit of FY23, compared to the average of 6.6 times the valuation of Asian telecom companies.
While Airtel has historically traded at a premium to the Asian telecom majors, the brokerage believes, in the context of changing dynamics, the gap could narrow.
One of the other reasons why Bharti Airtel traded at a premium was a low competition, with India being largely a duopoly sort of market. But BofA Securities sees risks of competition intensifying as rival Jio Infocomm is getting aggressive in the postpaid market, where Bharti Airtel has a stronghold. Airtel is improving its footprint in tier-3-4 cities where Jio has a stronghold.
“Competition could be more pronounced to poach competitors’ subscribers as organic net additions slow down,” BofA said.
Citing the downside risks to earnings, the brokerage has cut the earnings per share (EPS) estimates for FY24 and FY25 due to a slower-than-expected net addition of subscribers, lower margins, and interest expenses.
The EPS estimate for FY24 is down to Rs 26.77 from Rs 37.10, and for FY25, down to Rs 34.09 from Rs 54.31. As a result, the 12-month target for the stock has been slashed by a whopping 22% to Rs 700, implying a potential downside of 12% from the current levels. Bharti Airtel was trading 3.4% lower on Tuesday at Rs 791.95 on the NSE.
According to the brokerage, the consensus is building high expectations on tariff increases.
Consensus is factoring in a hike of 10% in the average revenue per user (ARPU) in FY23, and another 11% and 9% increase in FY24 and FY25, respectively, BofA Securities pointed out. With the general elections scheduled in 2024, the brokerage sees risks of the next round of tariff hikes being pushed back to post-elections, which would likely lead to downside risks to consensus.
(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)
“We consider ’s valuation as rich and see a limited margin of safety. Inflation and INR-depreciation headwinds could impact demand and lead to higher capex/interest payments going ahead,” the foreign brokerage said in a note to its clients.
Bharti Airtel is trading at 9.5 times its operating profit of FY23, compared to the average of 6.6 times the valuation of Asian telecom companies.
While Airtel has historically traded at a premium to the Asian telecom majors, the brokerage believes, in the context of changing dynamics, the gap could narrow.
One of the other reasons why Bharti Airtel traded at a premium was a low competition, with India being largely a duopoly sort of market. But BofA Securities sees risks of competition intensifying as rival Jio Infocomm is getting aggressive in the postpaid market, where Bharti Airtel has a stronghold. Airtel is improving its footprint in tier-3-4 cities where Jio has a stronghold.
“Competition could be more pronounced to poach competitors’ subscribers as organic net additions slow down,” BofA said.
Citing the downside risks to earnings, the brokerage has cut the earnings per share (EPS) estimates for FY24 and FY25 due to a slower-than-expected net addition of subscribers, lower margins, and interest expenses.
The EPS estimate for FY24 is down to Rs 26.77 from Rs 37.10, and for FY25, down to Rs 34.09 from Rs 54.31. As a result, the 12-month target for the stock has been slashed by a whopping 22% to Rs 700, implying a potential downside of 12% from the current levels. Bharti Airtel was trading 3.4% lower on Tuesday at Rs 791.95 on the NSE.
According to the brokerage, the consensus is building high expectations on tariff increases.
Consensus is factoring in a hike of 10% in the average revenue per user (ARPU) in FY23, and another 11% and 9% increase in FY24 and FY25, respectively, BofA Securities pointed out. With the general elections scheduled in 2024, the brokerage sees risks of the next round of tariff hikes being pushed back to post-elections, which would likely lead to downside risks to consensus.
(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)
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