Shares of Bharti Airtel Limited rose 3 per cent to hit an all-time high of Rs 781.90 on BSE after rating agency Moody's Investors Service raised the rating outlook of the company and its subsidiary Bharti Airtel Int'l (Netherlands) to positive from stable.
It also affirmed Bharti Airtel's Ba1 corporate family rating (CFR) and senior unsecured rating, as well as the Ba1 rating on the backed senior unsecured notes issued by Bharti Airtel Int'l (Netherlands) B.V.
"The outlook change to positive reflects Bharti's improving operating performance and credit metrics which, if sustained, could support an upgrade to investment grade within the next 12-18 months," Moody's Senior Vice President Annalisa Di Chiara said.
A continued expansion in the company's profitability, particularly at its core Indian mobile business, together with a steady reduction in its balance sheet debt is needed to mitigate the potential effect on Airtel's credit metrics of significant investments in 5G and the compounding growth of deferred liabilities during the moratorium period, Di Chiara added.
The stock has been gaining after the company announced tariff hikes on prepaid plans. It opened 0.7 per cent higher at Rs 764.80 against the previous close of Rs 759.50. With a market capitalisation of more than Rs 4,23,000 crore, the shares traded higher than 5 day, 20 day, 50 day, 100 day and 200 day moving averages.
The large-cap stock has gained 62 per cent in the last one year and has risen 51 per cent since the beginning of this year.
Moody's argued that Airtel's recently announced tariff increase is a meaningful step to drive average revenue per user (ARPU) higher, and supports the agency's expectation of rising profitability over the next 12-18 months.
The ratings agency also said that the recently-announced reform package by the Indian government for the financially stressed telecommunications industry will not only help strengthen Airtel's cash flow but also help ensure the long-term health of the sector.
Brokerage firm Motilal Oswal said that without capturing market share gains, the stock is trading at 7x consolidated EBITDA on a one-year forward basis, while the implied India business is trading at 8.5x. This doesn’t capture an additional 13 per cent EBITDA opportunity from market consolidation and the re-rating potential due to an improving FCF/RoCE profile.
It expects 24 per cent CAGR in consolidated EBITDA over FY21-24E on the back of 31 per cent CAGR in Mobile India EBITDA, aided by ARPU growth as a result of the tariff hike.
"We see potential for a re-rating in both the India and Africa business on the back of steady earnings growth. We value Bharti on a Sep’23E basis, assigning an EV/EBITDA of 10x/4x to the India Mobile/Africa business, arriving at a SoTP based target price of Rs 920. We maintain our Buy rating," it added.
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