Bharti Airtel’s share price recorded its best surge since September 12 and was the top gainer on the Nifty50 index on Friday, following ICICI Securities’ rating upgrade to ‘Buy’. The stock emerged as the top contributor to the rise in the benchmark index.
ICICI Securities upgraded Bharti Airtel from ‘Add’ to ‘Buy’, citing the company’s strong fundamentals, which they believe support its valuation rerating. The brokerage firm has kept its target price unchanged at Rs 1,875 per share.
Bharti Airtel stock has been in correction mode since last month. It is still trading at a discount of 7.75 per cent from its all-time high of Rs 1,779.
On Friday, the stock settled at Rs 1,629 on the NSE, up 68.60 points or 4.40 per cent from the previous day’s close.
Can Bharti Airtel Sustain Its Premium Valuation?
ICICI Securities highlighted that the company’s EV/EBITDA (Earnings before Interest, Tax, Depreciation and Amortisation) for FY26E stands at 11.3x, a premium to its APAC peers (excluding China), who are trading at a median of 7.1x. However, Bharti’s higher EBITDA CAGR of 14.8 per cent over the next two years, compared to just 4.5 per cent for its APAC (Asia-Pacific) counterparts, justifies this premium.
“We prefer to compare telcos as per FCF (Free cash flow) yield, wherein Bharti at 6.7 per cent for FY26E is reasonable compared to 6 per cent for APAC peers,” the brokerage firm said.
The analysts highlight five key parameters, which influence telco valuations, all of which have shown solid recovery for Bharti Airtel, suggesting that they may sustain or improve further.
According to the report, Bharti Airtel’s derating in the past was due to various events including a sharp rise in competitive intensity, with 122 new licenses issued in CY08 that were later cancelled in CY12, failure to secure pan-India data spectrum in CY10, expensive acquisition of Zain Africa operations, significant increase capital required due to spectrum renewal. In addition, Reliance Jio’s foray into India telecom in CY16, disrupted the industry and increased the pace of technology rollout, reducing profitability and increasing capital requirements.
“Five key parameters help explain valuations for telcos in general, and Bharti Airtel in particular – EBITDA growth and gross block increase, net debt and ROCE and AGR (including NLD) market share trend, ICICI Securities said.
Bharti’s FY26E EV/EBITDA valuation at 11.3x is at a significant premium to APAC peers (excluding China), which are trading at 7.1x. However, Bharti’s EBITDA is expected to grow at 14.8 per cent CAGR over FY25-27E compared to peers’ growth (much lower) at 4.5 per cent CAGR over the same period.
Bharti Airtel’s pre-tax ROCE improved to 14.6 per cent in fiscal year 2023-24 (FY20) compared to 4.1 per cent in FY20. The company’s net debt also reduced to Rs 1,352 billion in FY24 compared to high of Rs 1,474 billion in previous financial year.
Analysts at ICICI Securities expect Bharti Airtel to show further improvement in all the five parameters and sustain valuations in base case or enable further rerating.
