Buy Bharti Airtel ( Google Investment – A Strategic Move) – Potential upside 20%

ICICI Direct –
Google’s investment – a strategic move!

About the company:
 Bharti Airtel (Airtel) is India’s second largest telecom operator with a revenue market share of ~36% as on Q2FY22. The company has ~35.5 crore wireless customers in India (November, 2021) and ~12.9 crore
subscribers across operations in 14 African countries. It enjoys industry leading ARPU and margins in the wireless business.

Event:
 Google announced investment of up to $1 billion in partnership with Airtel as part of its Google for India Digitisation Fund. The deal includes investment of $700 million to acquire 1.2% ownership (on fully diluted basis) and up to $300 mn toward potential multi-year commercial agreements
 Albeit small, the investment outlines global tech giants’ reaffirmation that India is a two strong player market and a strategic tie-up is key. Moreover, the commercial agreements are likely to provide a boost to the company’s competitive position (in the form of improving handset affordability), network and the company’s focus on emerging space including cloud.
 We believe given Airtel’s superior subscriber quality, it is poised to witness maximum pass through of tariff

What should investors do?
 Favourable industry structure of three players (two being strong), government relief, tariff hike and fund raise puts Airtel in sweet spot to maintain its relative strength among peers with a formidable digital
ecosystem offering.
We remain constructive on Airtel and maintain

BUY rating with a revised SOTP target price of 860 Key triggers for future price performance:
 Tariff hike flow through to boost Airtel’s India ARPU, India EBITDA by 20%, 30%, respectively, from current levels
 Relative market share gain from VIL, given its stressed balance sheet and long term potential driven by growth opportunity from 5G

Alternate Stock Idea: Besides Airtel, we like Tata Comm. in our telecom space
 Play on enterprise communication and improving balance sheet
 BUY with target price of 1,775
Access Full report here – Airtel (icicidirect.com)