Bharti Airtel's Rs 20,000-cr digital lending bet: No effect on cash flow or leverage, says Citi  

Shares of country's leading telecom operator Bharti Airtel are in focus today after the firm announced a Rs 20,000 crore capitalisation plan for its Non-Banking Financial Company (NBFC), Airtel Money Limited. Brokerage CITI said Bharti’s NBFC expansion will not weigh on it cash flow or leverage position. 

The expansion is a natural adjacency to develop its next growth engine and diversify its portfolio. Over the past two years, Bharti has built a strong lending service provider model by integrating technology, data, and customer insights, according to Citi. 

Bharti Enterprises now intends to integrate this capability with its NBFC and scale the business using its balance sheet. Given Bharti’s strong FCF generation and upcoming rights issue payment, this foray should not materially weigh on leverage or cash flows, said the brokerage. It has a buy call on the Airtel stock with a price target of Rs 2380. 

Airtel will infuse Rs 20,000 crore over the next few years into the NBFC arm. Airtel will contribute 70% with the promoter group via Bharti Enterprises, bringing in the balance 30%. 

Meanwhile, Morgan Stanley has an overweight call on Bharti Airtel with a target price of Rs 2450. 

This expansion to offer loans via its own NBFC is a natural adjacency to drive growth and diversify its portfolio, the brokerage said. 

The group has been prudent in their capital allocation plan in the last several years & even though current investments in the NBFC will increase overall capex intensity, it will also build additional revenue streams with potential value creation in NBFC business, Morgan Stanley noted. 

Bharti Airtel shares ended 0.98% higher at Rs 1997.15 on Monday. Market cap of the firm stood at Rs 11.38 lakh crore. The announcement was made after market hours.