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Airtel shares are bummed out by 5G spectrum prices, not the earnings

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Airtel shares are bummed out by 5G spectrum prices, not the earnings


Bharti Airtel shares surged in early deals but made a U-turn into the red territory as positive brokerage commentary and more than double profit in the fourth quarter of the fiscal failed to leave investors impressed.

Airtel shares are bummed out by 5G spectrum prices, not the earnings
Bharti Airtel shares clawed their way back into the negative territory on Wednesday, a day after the telco said it had more than doubled its profit for the January to March 2022 quarter on the back of tariff hikes.
The downward movement in the stock may be on the back of the Digital Communications Commission (DCC) going ahead with the 5G spectrum auction base price suggested by the Telecom Regulatory Authority of India (Trai).
Bharti Airtel shares surged 2.8 percent in early deals but made a U-turn soon after. At 12:55 pm, the stock was trading Rs 692.25, down 2.1 percent from its previous close on BSE.
The Department of Telecom is likely to move the 5G spectrum auction proposal to the Union Cabinet for final approval next week, an official source told PTI on Tuesday. "The DCC has firmed up its view. It's not a decision-making body. It will give recommendations to the Cabinet for final approval of the auction plan. There is no change in the base price that Trai has recommended," the official said.
Telecom operators have opposed Trai's recommended base price. In April, Airtel had urged the government not to charge high fees for allotting 5G spectrum, saying a faster rollout of the next-generation telecommunication network can have more benefits than collecting revenue in upfront cost.
Ajit Mishra, VP- Research, Religare Broking Ltd said telecom operators were hoping for some respite on the calculation of base price for 5G auctions to make it economically more viable. "However, it seems there is no major change in the base price. Today’s move in Bharti Airtel is largely on the account of results, which came in after market hours on Tuesday," he told CNBCTV18.com.
Meanwhile, following the telecom operator’s 164 percent year-on-year (YoY) jump in net profit to Rs 2,007.9 crore that beat Street expectations, brokerages have recommended buying the telco’s stock as they see over 25 percent upside in it.
Investors were initially positive as the telco’s quarterly revenue increased 22.3 percent to Rs 31,500 crore in the January-March quarter, while ARPU (average revenue per user) rose to Rs 178 from Rs 145 in the previous financial year, led by a healthy flow-through of tariff hikes and strong 4G customer additions.
According to the telco, its ARPU continues to be the best in the industry, with average data usage per data customer at 18.8 GBs per month and voice usage per customer at 1,083 mins per month.
Here is what brokerages have to say
Recommendation Target Price 
CLSABuyRs 953
JefferiesBuyRs 880
NomuraBuyRs 850
JPMorganOverweightRs 900
Jefferies expects a 24.3 percent growth from May 17’s closing price of Rs 707.55. Jefferies has lowered EBITDA estimates by 1-2 percent on higher diesel prices and expects the telco to deliver 20 percent EBITDA CAGR over FY22-25. Nomura sees an upside of 20 percent from Tuesday’s closing.
Balaji Subramanian, VP, IIFL Securities, said Bharti Airtel revenue market share gains should continue thanks to solid execution and ARPU tailwinds. He said 5G spectrum auctions need to be watched. How smartphone shipments for the industry as a whole trend also needs to be watched, given persisting chip shortages.
Market expert Ajay Bodke, too, remained constructive on the telco. He said, looking at tariff increases over the last 12 months, there is a clear, healthy flow through in the ARPUs. He said the home and the enterprise businesses are doing well but for two weak spots — DTH business and the Africa business. "I expect around 20 percent EBITDA CAGR from 22 to 25 for Bharti. I think one should have that as part of the core portfolio," Bodke said.
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