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.
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
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)