Stock To Buy: A Telecom Stock That May See Accelerated Growth In Future

Brokerage firm, Emkay Global has recommended buying the stock of Bharti Airtel in its latest report. The brokerage has set a price target of Rs 730 on the shares on the back of a number of factors.

Reasons to buy the Bharti Airtel stock

According to Emkay Global, Bharti Airtel's board yesterday approved a fundraise of up to billion through a callable rights issue at Rs 535 per share, implying a 7% equity dilution. The promoter group will fully subscribe to their rights entitlement and also to the unsubscribed portion of the issue.

"Sunil Bharti Mittal highlighted that issue proceeds would be utilized for balance sheet deleveraging, growth capital expenditure across business segments and impending 5G spectrum auctions. He also allayed investor concerns about capital allocation and promoter stake," the brokerage said in its report.

Tariff hike to benefit Bharti Airtel

"We believe that management articulated its near-and long-term strategy well, with strong visibility on revenue growth across businesses, and expectations of healthy return ratios in the near term. However, it did not quantify the potential increase in capex spends to support the high growth rates. Apart from that, it addressed concerns about investments in Indus Tower, Airtel's investment in OneWeb and debt-free balance sheet at the promoter level (Bharti Telecom). We continue to believe that Bharti Airtel remains well-placed to gain the maximum from tariff hikes given the quality of subscribers and with Vodafone India's weakening financial position leading to a strong influx of new subscribers," the brokerage further added.

According to Emkay Global, given the tariff hike expectations in H2FY22 and strong FCF generation, the underlying balance sheet is well-funded, and the current fund-raising is to enhance investments for 5G spectrum purchase, with the service launch expected in H2FY23.

We believe that Bharti Airtel is augmenting investments to gain the maximum from Vodafone India's expected subscriber losses and keep its balance sheet well-funded for the impending 5G
spectrum auctions and service roll-out. We retain Buy on the stock with a SOTP-based target price of Rs 730," the brokerage has said.

Disclaimer

The above stock is based on the report of Emkay Global. Investing in stocks is risky and investors should do their own research. The author, the brokerage firms or Greynium Information Technologies are not responsible for any losses incurred due to a decision based on the above article. Investors should hence exercise due caution as are at record peaks. Please consult a professional advisor.