Bharti Airtel Rights Issue: Brokerages Optimistic; Shares Rally
Analysts remained upbeat on Bharti Airtel Ltd. as they expect the carrier’s plan to raise funds through a rights issue to strengthen its balance sheet, creating headroom for 5G investments.
The Sunil Mittal-owned telecom operator at its board meeting on Aug. 29 approved rights issue at Rs 535 apiece, including a premium of Rs 530 a share, according to an exchange filing. The issue size will be up to Rs 21,000 crore.
Eligible shareholders, it said, would be entitled to one share for every 14 held on the record date — to be notified later. The rights issue price is at a 9% discount to Friday’s closing.
“The board of directors comprehensively reviewed the industry scenario, business environment, financial/business strategy of the company and approved its plan to raise further capital,” the filing said.
The terms of payment include 25% of the price to be paid at the time of application. The balance 75% will be paid in two or more calls that will be decided by the board. The maximum timeframe for the payment is 36 months.
The promoter and promoter group will subscribe to their aggregate rights entitlement. They will also subscribe to any unsubscribed shares in the Issue.
Shares of Bharti Airtel rose as much as 2.3% to Rs 609 apiece early on Monday. All the 33 analysts tracking the company have a ‘buy’ rating on the carrier. The average of the 12-month consensus price targets implies an upside of 23%.
Here’s what analysts have to say about Bharti Airtel’s fundraising plans…
Maintains ‘buy’ with a target price of Rs 705, implying an upside potential of 20.1% from Friday’s close.
Reliance Jio’s stronger balance sheet, impending 5G spectrum auction and related capex may have prompted Bharti Airtel to raise funds.
The fund-raise decision is positive but was not necessary at this juncture. It does provide Bharti Airtel with the necessary ammunition in case of aggressive 5G rollout.
There will be a 7% dilution over three-years. 55% of capital coming from the promoter will be viewed positively by investors.
Any expenditure on increasing capacity will be viewed positively. However, any capital allocation to the value chain, such as additional stake in Indus Towers will be viewed negatively as it does not increase the network’s capacity.
The balance sheet is well funded despite 3 times net debt to Ebitda, considering rising Ebitda due to market share gains and free cashflow generation.
Over FY22 and FY23, Bharti Airtel has the repayment obligations of Rs 18,400 crore and Rs 10,000 crore, which can be easily funded by Ebitda of Rs 54,900 crore and Rs 65,600 crore, respectively.
Retains ‘buy’ with a price target of Rs 780, implying a upside potential of 32.91% from Friday’s close.
Fundraising creates headroom, especially if the government prepones 5G spectrum auction to earlier than expected in 2022.
Net gearing is comfortable at 3 times Ebitda; however, in Q1FY22 net debt increased 31% to $21.6 billion.
The company’s debt increased due to reclassification of Adjusted Gross Revenue liabilities as debt and deferred spectrum liabilities, which combined are $10.6 billion.
Assuming the rights issue is fully subscribed and Bharti Airtel uses funds to deleverage, $700 million will lower gearing from 3 times to 2.9 times Ebitda and will be mildly EPS-accretive.
In past years, Bharti Airtel’s revenue market share performance has been commendable, with nil revenue share loss since the Reliance Jio launch.
Rates ‘buy’ with a price target of Rs 655, implying an upside potential of 11.6% from Friday’s close.
The rights issue is mainly aimed at shoring up the balance sheet for 5G investments including spectrum auction, which is likely within FY22.
A strong balance sheet would also position the company well to benefit from a potential Vodafone Idea Ltd. bankruptcy, which could lead to an influx of 10 crore customers and create the need for additional spectrum and capex.
The recent acceleration of growth in home broadband, data center, and enterprise businesses could also necessitate more capex.
A staggered fundraise over three years in equal installments, net debt/Ebitda can reduce to 2.5 times in FY22E and further to 1.6 times by FY24E.
Reiterates ‘buy’ with a target price of Rs 685, implying an upside potential of 16.7% from Friday’s close.
The rights issue will be EPS accretive and will result in 7% increase in shares outstanding.
The rights issue rewards existing shareholders by offering shares at a discount.
Free cashflow generation in the standalone business is weak and requires tariff hikes/market share gains.
With 5G auctions and likely sharp market share gains over the next three years, the company may need to raise capital.
Maintains ‘outperform’ with a target price of Rs 775, implying an upside potential of 32.1% from Friday’s close.
High participation in the rights issue is expected given the reasonable discount and payment terms.
There is no major stress even after resumption of spectrum payouts (expected in FY23E) and payment for AGR liabilities.
The upcoming capital-raise will only strengthen the company’s balance sheet and provide a good buffer to make accelerated investments.
The company will also emerge as one of the key beneficiaries of the relief measures being discussed by the government.
Maintain Buy rating with a target price of Rs 760
Fresh funds will strengthen the company’s balance sheet further for continued investments in 4G and eventually 5G
The founders of Bharti and Singtel, who collectively hold a 56% stake, will fully subscribe to the extent of their entitlement as well as any unsubscribed portion
The Rs 21,000 crore amount to be raised through the rights issue will lead to a further 13% reduction in net debt that stood at Rs 1.6 lakh crore as of June; the debt reduction will take place in a staggered manner
Maintain Buy rating with a target price of Rs 720
Bharti’s proactive capital raise could be partly justified as it ensures funding for targeting any large-scale opportunity in the ongoing market consolidation; this also helps the company in competing with deep-pocketed peer Reliance Jio and creates a war chest for 5G technology upgrades
The rights issue funds, which will be raised gradually over the next 36 months, indicate that there “may not be any significant immediate requirement”
“Given its non-core investments in Indus Tower and DTH in the last one year, there is a risk of a non-core investment”