Gurmeet Chadha Optimistic About Bharti Airtel’s Future Amid Market Confidence

I believe the market is now confident that Bharti Airtel will survive, which was the initial concern. Now, the focus is on how quickly it can build its network and regain lost market share,” says Gurmeet Chadha from Complete Circle Consultants.

Is the market ready to slow down, given its continuous rise since Wednesday after the verdict?

The market always seems one-sided when it’s going up, but this also means the risks are increasing. So, you need to be selective. It’s easy to get carried away. The market is factoring in budget expectations. Stocks related to the rural economy, consumption, and housing finance are going up. Economy-focused stocks like railway and defense are making a comeback after a previous correction. However, it’s essential to temper expectations. The India story remains solid, but caution is needed.

What’s your specific take on the telecom sector? What do you think about Vodafone Idea’s future?

The market is trying to price in Vodafone Idea’s survival, which was a big concern initially. The bigger challenge now is how quickly it can build its network and win back lost market share. They’ve lost over 21 crore subscribers since the merger and are still losing customers. Their debt levels are high, and their EBIT is about 12,000 crores, with debt servicing three times that amount. They need more capital and might face equity dilution as spectrum payment deadlines approach early next year.

I prefer Bharti Airtel. Their mobility business is doing well, with the highest 5G additions quarter-on-quarter and leading ARPU. The home and broadband business is also thriving. For the first time, they have 12,000-15,000 crores of free cash flow after debt payments, providing good financial leverage in addition to operating leverage from ARPU increases. It’s a steadier option compared to Vodafone, which, although potentially higher in risk-reward, is something I’d avoid.

What about companies like ABB and Siemens?

It’s hard to invest more in these companies now. ABB is trading at 50 times EV by EBITDA and 80-90 times earnings, with the next four-five years’ order book already factored in. Siemens is similar, along with some defense companies. Any rise in commodity prices or order pullbacks isn’t currently factored into the market. There are some good investments in public sector undertakings (PSUs) like NTPC, which is still at about 18 times earnings and offers a 5-6% dividend yield. Power Grid is another option. Some railway ancillary companies are also promising, but overall, it’s time to be selective and lower expectations as 30-40% returns aren’t sustainable year after year.

What’s your view on the latest IPO and the auto sector?

I’m positive about it. It’s going to be one of the largest IPOs, potentially re-rating the entire auto value chain. The global shift to electric vehicles (EV) and Toyota’s study on hybrids have shown that internal combustion engine (ICE) parts are still needed. With China moving to EVs and Europe facing supply chain issues, Indian auto parts manufacturers, which haven’t seen much capex recently, might make a comeback.

Uno Minda is one company that’s performed well with a mix of content, convenience, and an EV portfolio. Sandhar Technologies, which makes frames and locks for two-wheelers, is also moving into the EV sector. There are many more forging and fabrication companies in this space that could see significant growth.

I’m also looking at two-wheeler companies and farm equipment manufacturers, especially as the government focuses more on the rural economy. There’s still some distress in rural areas, which was evident in recent election outcomes. Upcoming state elections might lead to more support for agriculture, benefiting two-wheeler companies.