Broker's call: Bharti Airtel (Buy)

| Updated on March 01, 2019 Published on March 02, 2019

Motilal Oswal

Bharti Airtel (Buy)

CMP: ₹307.05

Target: ₹380

Bharti Airtel’s board has approved an ₹32,000 crore fund raise, which includes a rights issue of ₹25,000 crore and perpetual bonds with equity credit of ₹7,000 crore (foreign denominated).

Issue price of ₹220/share implies an issuance of 1,134 million rights shares, which would result in 22 per cent post equity dilution.

The fund raise is likely to bring down net debt/EBITDA sharply to 3.5x (FY19), as against the current estimate of 4.5x. Additionally, the plans of Africa IPO and Bharti Infratel stake sale will help raise ₹40,000 crore, which should reduce its net debt to ₹47,500 crore (net debt to EBITDA of 1.6x) by FY21.

Moreover, we believe that capex intensity has peaked out, which should reduce its annual cash burn from ₹16,900 crore in FY19 to positive FCF of about ₹4,300 crore in FY21, thus restricting the increase in net debt.

In our view, despite the steep dilution, the fund raising plan is a welcome positive which will allow Bharti to be self-sufficient and manage operations without any ARPU increase. Maintain ‘Buy’ with a target price of ₹380.

Published on March 02, 2019
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