Axis Capital, in a comprehensive research report, has initiated coverage on Bharti Airtel with a BUY rating and set a target price of Rs 1,303. The report emphasizes Airtel’s compelling investment prospects, anchored in the ongoing trends of subscriber premiumisation, the upcoming 5G revolution, robust execution strategies, a stable competitive landscape, and supportive government policies.
Key Insights from Axis Capital’s Report:
Organic ARPU Uplift: Axis Capital underscores the organic growth potential within Airtel’s subscriber base, projecting a subscriber premiumisation trend. This includes shifts from feature phones to 4G smartphones, prepaid to postpaid subscriptions, and increased consumption of additional services in the postpaid segment. This, according to Axis, is poised to drive a 7-10% uplift in Average Revenue Per User (ARPU) over the next 12-18 months, even without a tariff hike.
Tariff Corrections: While the telecom sector witnessed tariff hikes in 2019, 2021, and 2022, with entry-level rates rising significantly, Axis Capital suggests that further tariff hikes in the next 9-12 months are unlikely. Despite this, Airtel’s ARPU has experienced a commendable increase of around 60% during this period.
5G Potential: Axis Capital highlights the transformative impact of 5G on revenue growth for telecom companies globally. The advent of 5G is expected to drive increased data usage and, in some cases, differential pricing. The report suggests that India will follow this global trend, and the higher capacity of 5G to offer premium-priced higher/unlimited data plans will contribute to ARPU growth. Wireless broadband (FWA) is projected to boost Bharti’s broadband revenue by 70-90%.
Stable Competitive Environment: Axis Capital expects the current stability in competition to persist, potentially supporting a rise in tariffs. With a cautious view on Vodafone Idea’s weak 5G offering, Axis Capital anticipates Airtel focusing on capturing Vi’s premium subscribers during their transition to 5G handsets in the near term.
Key Risks and Conclusion: While recognizing Bharti Airtel’s strong financial position, spectrum portfolio, and execution capabilities, Axis Capital acknowledges potential risks, including a slower 5G ramp-up affecting mobile/broadband segments and increased competition in the Indian mobile sector.
