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Bharti Airtel’s earnings preview: What’s in store?

Major telecom player—Bharti Airtel will release its second-quarter FY2022 earnings on November 2 after market hours. Covid19 pandemic came as a boon in disguise for the telecom sector in India and the world over. Work from home and school from home created a huge need for data and the telecom sector perfectly captured it. Let us take a quick look at returns. While Nifty delivered 118.6% on the low levels (April 3, 2020) after the pandemic breakout, Bharti Airtel returned 65%. In a year, the scrip’s returns were 52.8%, marginally higher than Nifty ’50s 51.4%. In six months, Airtel’s returns increased 4.2% than Nifty ’50s 20.8%.

Bharti Airtel’s Q2FY2022 earnings
Bharti Airtel is a dominant player in the Indian telecom market alongside Jio. The company is positioned well to capitalize on prospering digitization trends. Airtel has opted for the Government’s relief to telecom companies in deferring AGR payment (four-year moratorium). With funds from its right issue, the company’s liquidity position will further get better. It should pave way for some aggressive future bets on the competition front with Reliance (NS:RELI) Jio, upcoming 5G, and related fibre investments, and digital foray. The company has better growth prospects across verticals and territories given its relatively lower penetration. As the world goes more and more digital, demand for data, connectivity, and value-added services on the individual and business levels has increased.

The coming decade is going to witness a massive wave of broadband-enabled digital concepts. These themes include the use of drones in last-mile delivery, the internet of things (IoT), widespread usage of driverless passenger and commercial vehicles, virtual reality, industrial automation. Such developments will create huge opportunities for telecom companies. The performance of Airtel’s Africa business has been particularly healthy for the last four years. Including its African operations, Bharti Airtel being the largest telecom operator in India will be the key beneficiary. The company has witnessed an 18 times growth in data usage. It’s ARPU (average revenue per user) is up 46% from lows and global firm CLSA expects it to increase to Rs 199 in FY2024. Tariff rationalization provides scope for better ARPUs (average revenue per user).

Analysts’ target price and recommendations
Motilal Oswal Financial Services projects Bharti Airtel’s FY2022E revenue at Rs 1,12,700 crore, up 12% year-on-year from Rs 1,00,600 crore in FY2021. The firm anticipates FY2022E EBITDA at Rs 54,200 crore, up 19.4% y-o-y from Rs 45,400 crore in fiscal 2021. EBITDA margins are expected to expand 300 basis points to 48.1% in FY2022 from 45.1% in FY2021. The research house pegs the company’s ARPU at Rs 149 at end of FY2022.

Most brokerage and equity research firms have a positive outlook for Bharti Airtel. Motilal Oswal has a ‘buy’ recommendation for the scrip with a target price of Rs 720 per share. Based on the closing price on October 29, it reflects a ~5% return potential. Global research house CLSA retained a ‘buy call on the stock with a target price of Rs 825 per share. It translates into a return potential of 16.8%. ICICI Securities also has a ‘buy’ opinion on the scrip with a target price of Rs 712, reflecting a return potential of ~4%.

Shareholding and key technicals
In September 2021 quarter, while mutual funds holding declined 1.5% quarter-on-quarter to 11.37%, FIIs/FPIs and DIIs have raised their stake by 1.75% and 0.24% respectively. The stock is trading above its 50-day/100-day/200-day EMA. However, the scrip doesn’t appear favorable based on other key technical indicators such as RSI and MACD.

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