Morgan Stanley raised the target price to Rs 530 from Rs 410 and upgraded the stock to overweight.
Bharti Airtel may have ended flat on December 3, but the stock has rallied 60 percent in the last nine months and 34 percent in the last three.
The decision to hike tariff has played a role in the recent rally but the telecom operator’s continued focus on operating numbers at home and in Africa, asset monetisation plans and addition of subscribers has served it well over the last few months.
The revised tariffs—in the range of 50 paise to Rs 2.85 per day—for mobile customers kicked in on December 3.
"Now we factored in 40 percent tariff hikes by FY22 against 35 percent earlier, and forecast 24 percent EBITDA CAGR and free cash flows at Rs 44,400 crore over FY21-22," said CLSA, which has a buy call on the stock.
The brokerage raised its target price to Rs 560 from Rs 515, implying a 22 percent potential upside from the current level, saying it factored in 25 percent of AGR dues risk in its valuation.
Morgan Stanley also raised the target price to Rs 530 from Rs 410 while upgrading the stock to overweight, as average revenue per user (ARPUs) is likely to rise after the tariff hike.
The brokerage sees an improvement in profitability and balance-sheet repair over the next few years. "Bharti Airtel will be a key beneficiary of the same along with Reliance Jio," it said.
Sharekhan also tweaked its revenue estimates for FY20 and FY21 on account of the tariff hike and in anticipation of pricing sanity.
With new tariffs, a blended ARPU improvement of 20-23 percent will translate into around Rs 3,300 crore and Rs 8,500 crore boosts in EBITDA in FY20 and FY21, respectively.
The brokerage says there is a possibility of consolidation in the industry to two formidable players, if the government does not provide any relief on the adjusted gross revenue (AGR) demand.
"It would be net beneficial for Bharti as it is well placed to gain the revenue market from the weaker telecom company. We continue to remain positive on Bharti, considering its steady EBITDA performance in a tough environment, scope for growth in 4G subscribers, moderation in capex intensity and improving free cash-flow position,” said Sharekhan.
The brokerage while maintaining a buy rating on the stock, revised the price target to Rs 540.
Recent media reports said the committee of secretaries formed to provide relief to stressed telcos has been disbanded.
"If there would be no relief from the government on the adjusted gross revenue case, the leverage ratio of the incumbents would increase or force them for another round of large equity raise to fund these payouts," Sharekhan said.
The tariff hike alone may not be enough to alleviate AGR payout concerns, the brokerage said. It believes the government may consider some relief, given the stressed balance sheet and the potential change in market structure.
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