Kolkata: BofA Securities has downgraded Bharti Airtel’s stock to `neutral’ from `buy’, citing near-term headwinds such as rising inflation, mounting diesel prices and the likelihood of the telco’s gearing rising on the back of material overbidding risks in the upcoming 5G spectrum auction in June.
The global brokerage added that rising inflation and weaker rural sentiment would also make it difficult for telcos to push through another tariff hike in the near-term, saying the next hike would not happen before October.
“In a rising interest rate environment, we see downside risks to EPS/fair value on the back of increased gearing; and expect the increase in retail diesel price to have an impact on Bharti’s EBITDA margin as most towers run on diesel generators,” BofA Securities said in a note.
Airtel shares closed nearly 1% lower at Rs 747.25 on BSE Thursday.
The brokerage added that its sensitivity analysis indicates that “a 10% increase in diesel price has a 40-50 bps impact on (Airtel’s) India cellular Ebitda margin”.
According to BofA, rising inflation would also have an impact on feature phone to smartphone upgrades and net adds.
To be sure, the brokerage has given Bharti a neutral rating (and not underperform) as in the current market it “considers telco earnings to be defensive,” and also sees tailwinds from non-cellular businesses like fiber broadband, enterprise, which would limit any material downside.
“We expect Bharti to report a strong set of 4Q numbers around mid-May (we estimate. 10% qoq increase of India cellular revenues,” BofA said in its note to clients.
Analysts expect Reliance Jio, Bharti Airtel and Vodafone Idea (Vi) to report strong average revenue per user (ARPU) as well as India mobile revenue growth sequentially in the fiscal fourth quarter, helped by the full beneficial impact of sharp tariff hikes taken last November-December.
Jefferies estimates Airtel and Jio to report 10% sequential jumps in their India mobile revenues in the March quarter, while BNP Paribas estimates Vi’s to rise by around 5.5% on-quarter.
Airtel, Vi and Jio had raised prepaid tariffs by 20-25% around end-November-early-December, 2021.
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