The
stock was down 3.95% to Rs 761.5 in Wednesday early afternoon trade on the exchange.
“We consider Bharti’s valuation as rich and see limited margin of safety as we see risks of the next round of tariff hikes being pushed back to post-general elections, which would lead to downside risks, in that, inflation and INR-depreciation headwinds could impact demand and lead to higher capex/interest payments going ahead,” BofA Securities said in a note.
JP Morgan backed the view, saying Bharti’s stock price is building in a 10% tariff hike, and if that doesn’t come through over the next three months, it will be a sentiment negative for the stock and could lead to a de-rating .
The global brokerage added that for Airtel to defend its market share it would have to increase its capex and match
Jio’s in order to not fall behind the market leader on 5G rollouts. “This will drive lower free cash flows and declining ROICs for Bharti.”
Both Airtel and Jio are in a race to roll out 5G services by the year-end and achieve pan India 5G coverage. Both telcos, in fact, are bringing ahead their capex, which will see higher spends over the next 18 months on 5G deployments .
According to BofA Securities, the Airtel stock has traded at a premium amid low competition, with India largely being a 2.5-player market. “Going ahead, we see risks of competition intensifying with Jio getting aggressive in the postpaid market, which is Bharti’s stronghold ,” the brokerage said. Such a scenario, it added, could lead to poaching of competitors’ subs causing a slowdown in organic net additions. BofA, though, expects Bharti to gain market share from loss-making (Vi) — which is yet to even announce 5G rollout plans — and also gain from any further telecom sector benefits from the government. It also expects Airtel’s enterprise and (home) broadband business momentum to stay strong.
