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Last Updated : Dec 06, 2019 04:13 PM IST | Source: Moneycontrol.com

CLSA remains bullish on Bharti Airtel as fund-raising plan assuages AGR-risk concerns

Bharti Airtel, led by the recent tariff hikes and 4G ramp-up, offers 24 percent EBITDA CAGR over FY21-22CL, says CLSA.

 
 
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Global brokerage house CLSA is bullish on telecom operator Bharti Airtel after fund raising plans, citing favourable risk-reward ratio.

The stock has been one of biggest gainers among the Nifty, rising 55 percent in the last year amid recent tariff hike, widening subscribers base from competitors etc.

The company’s board of directors on December 5, subject to shareholders approval, planned $3 billion fund-raising.

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Of this, $2 billion will likely be QIP (qualified institutional placements) of shares and/or convertible bonds and up to $1 billion issuance is likely under listed/unlisted FCCB (foreign currency convertible bonds) and/or redeemable non-convertible debentures.

The fund-raising, even if all in equity at CMP, will likely be around 10 percent dilution. It has been triggered by the adverse Supreme Court ruling on the adjusted gross revenue (AGR) case, wherein the outcome of the review petition is awaited, said CLSA. The brokerage has maintained a buy call on the stock with a target of Rs 560, implying 25 percent upside from current levels.

According to the brokerage, AGR risks for Bharti Airtel can likely lead to payments of Rs 34,300 crore or $4.7 billion, of which around 75 percent is interest and penalties.

While operators have filed review petitions on AGR case and also Bharti Airtel's free cashflows of Rs 44,400 crore/$6.2 billion over FY21-22 can help tide over risks of AGR payments, this fund-raising will mitigate risks of immediate funding, CLSA said.

In November, Bharti Airtel reported a loss of Rs 23,045 crore for the second quarter ended September 2019, mainly on account of statutory dues arising from the Supreme Court’s AGR order.

The court upheld the government's position on including revenue from non-telecommunication businesses in calculating the annual AGR of telecom companies, a share of which has to be paid as licence and spectrum fee.

Not only Airtel but Vodafone Idea and other telecom operators combined have to pay the government a whopping Rs 1.4 lakh crore.

According to the latest estimates by the telecom department, Bharti Airtel faces a liability of around Rs 62,187 crore (including share of Tata Group of companies and Telenor India), while Vodafone Idea may have to pay about Rs 54,184 crore.

"In the interim, we continue to factor in 25 percent of AGR dues risk in our stock valuations. Meanwhile, Bharti Airtel, led by the recent tariff hikes and 4G ramp-up, offers 24 percent EBITDA CAGR over FY21-22CL," said CLSA.

"Our Bharti Airtel forecasts factor in 40 percent cumulative tariff hikes until FY22CL, and its competitive tariffs and 4G network ramp-up leave upside to our market-share forecasts of 30 percent by FY22CL," it added.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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First Published on Dec 6, 2019 04:13 pm
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