‘Buy’ Bharti Airtel stock; Credit Suisse, Macquarie, Goldman Sachs see 60% upside in share price

RIL’s digital arm, Reliance Jio launched new postpaid plans earlier this week, to gain traction in the segment. These plans come with OTT services such as Amazon Prime, Disney+Hotstar (VIP) and Netflix subscriptions, along with 75 GB monthly data under Rs 399 base plan. In comparison, the current entry-level postpaid plan of Airtel is at 25 per cent premium to Jio’s base plan. Research and brokerage firms Credit Suisse, Macquarie, Goldman Sachs are upbeat on the Bharti Airtel stock price, with potential upside up to 60 per cent. Credit Suisse expects Bharti Airtel may sweeten its offering by bundling more data/services akin to what it did with broadband plans recently. Bharti Airtel stock price has corrected by 14 per cent over the past 20 days due to investor concerns on mobile tariff hike delay. In any event, immediate price hike or long delay in the price hike, Credit Suisse sees Airtel benefitting in the medium to long term, given its strong execution and premium position in the sector.

60% potential upside in Bharti Airtel stock

In the noon deals, Bharti Airtel shares were trading 5.24 per cent higher at Rs 440.80 apiece, as compared to a 1.81 per cent gain in BSE Sensex. Credit Suisse has given an ‘outperform’ rating to the stock, with a price target of Rs 700 apiece, implying an upside of 60 per cent. According to the brokerage firm, there is a limited threat to Airtel’s existing postpaid subscriber base. There will not be much subscriber churn risk to Bharti Airtel’s existing postpaid customer base, given its premium brand positioning and lower churn in this segment.

Jio’s new plans won’t impact Airtel’s postpaid revenue

Analysts at Goldman Sachs believe that new postpaid tariff plans by Jio will not have a significant impact on Airtel’s postpaid revenue and group EBITDA. It also added that these plans do not suggest that prepaid tariffs would not move up. Jio has had a postpaid plan of Rs 199, a 60 per cent discount to Bharti’s entry-level postpaid plan, for more than two years. Goldman Sachs analysed that Bharti’s postpaid customer base is marginally up during the last two years. It has reiterated ‘buy’ rating with an unchanged 12-month target price of Rs 625, offering 41 per cent upside from current levels. “We believe Bharti can sustain double-digit EBITDA growth for the foreseeable future, with upside risks from higher-than-expected tariff hike and market share gains from Vodafone Idea,” it said.

Bharti Airtel seeks quality over volume

Analysts at Macquarie believe that the best strategy to increase tariff is to entice subscribers by providing attractive content bundles. The firm noted that with only 5 per cent of India mobile subscribers on prepaid plans with large content bundles, there is a lot of room for both Bharti Airtel and Reliance to grow. Jio is Rs 100 cheaper than Airtel and Idea at entry-level. The brokerage firm, in its report, highlighted that this could put some pressure on Airtel and Voda-Idea 4G postpaid subscribers but the bigger picture considerations are tariff upgrades are easier through conversion from prepaid (95% of users) to postpaid (5%) with attractive content bundles, the more data is consumed, the more important network quality and app quality becomes and Voda-Idea remains the weakest link. According to the analysts at Goldman Sachs, Airtel clearly assumes being more expensive and seeking quality over volume. The research firm has given an ‘outperform’ rating to the stock with price target pegged at Rs 700, translating it into 60 per cent upside.

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