In the ever-evolving world of stock market dynamics, Bharti Airtel, a prominent player in India’s telecom sector, has recently seen a flurry of analyst activity. The company’s stock has garnered attention both for its impressive rally and the challenge of finding avenues for future growth. Let’s delve into the details of this intriguing story.
Mixed Signals from Analysts
Over the last quarter, Bharti Airtel’s stock has become the subject of heightened scrutiny, with analysts making their opinions known. Notably, it is one of the ten companies that witnessed the highest number of downgrades by analysts during this period. This trend has emerged despite brokerages raising their target prices for the stock.
Buy Calls Dip, Sell Calls Rise
During the three months leading up to August, ‘buy’ recommendations for Airtel’s stock dropped from 28 to 24. In contrast, ‘sell’ calls increased from three to four, and ‘hold’ calls grew from one to three. This shift in sentiment reflects the challenge analysts face in identifying further upside potential for the stock.
Impressive Price Rally
Bharti Airtel’s stock has shown remarkable resilience, surging by 14.2 percent over the past six months to reach Rs 856.40 by the end of August. This impressive performance outpaced the NSE Nifty 50’s gain of 10.3 percent during the same period.
Why the Downgrades?
The primary reason for the downgrades is the recent rally in Airtel’s stock price, which has left limited room for further appreciation. Geojit Financial Services, in particular, cited this rally as the reason for downgrading Airtel’s rating from ‘buy’ to ‘hold,’ emphasizing that the stock’s recent surge could potentially cap any further price gains.
Dolat Capital also pointed out the absence of imminent tariff hikes and the recent price rally as headwinds for the stock. They anticipate a period of “time correction” for Bharti Airtel, leading to a downgrade from ‘accumulate’ to ‘reduce,’ given the stock’s outstanding performance. Prabhudas Lilladher made a similar shift, downgrading from ‘buy’ to ‘accumulate,’ citing the recent stock rally as well.
Rising Target Prices Despite Downgrades
Interestingly, even as analysts lowered their ratings, they raised their target prices for Bharti Airtel. This counterintuitive move reflects optimism about the telecom industry, which is gradually evolving into a duopoly with Vodafone Idea grappling with customer losses. Both Airtel and Jio are expected to reap the rewards of this consolidation.
Growth Factors on the Horizon
Geojit increased its target price for Airtel stock from Rs 926 to Rs 954 using the Sum of the Parts (SOTP) method. They highlighted factors such as the impending rollout of 5G networks, a shift toward premium customers, and growth in the African business.
Airtel’s Average Revenue Per User (ARPU) rose to Rs 200 in Q1FY24 from Rs 183 in the previous year, driven by a 38.3 percent YoY growth in postpaid customers and an 11.9 percent increase in 4G customers. The company also witnessed a 16.6 percent growth in mobile services in Africa during the same quarter.
Dolat Capital revised its SOTP-based target from Rs 845 to Rs 865. However, Airtel’s stock has already surpassed this mark, reaching Rs 876. Dolat Capital’s optimism stems from accelerated growth in the home broadband and enterprise segments, coupled with an ARPU uptick, which they believe will drive long-term growth. Prabhudas Lilladher also raised its SOTP-based target price from Rs 923 to Rs 935, bolstered by their increased ARPU projections for FY24 and FY25.
Bullish Outlook Persists
Other brokerage firms share this optimism, with Axis Securities maintaining a ‘buy’ recommendation and increasing the target price to Rs 1025, representing a 15 percent upside from the Current Market Price (CMP) of Rs 890. Similarly, Motilal Oswal has kept its ‘buy’ call intact while raising the target price to Rs 1020 from Rs 950.
In conclusion, Bharti Airtel continues to be a subject of keen interest for analysts, with divergent opinions reflecting the stock’s recent rally and the quest for sustained growth in a changing telecom landscape. As the telecom industry consolidates, the future holds promise for Airtel and its investors, with 5G and customer additions poised to play pivotal roles in the company’s growth story.