Airtel shares set for a catch up rally after Reliance Jio takes a huge valuation lead

Airtel shares set for a catch up rally after Reliance Jio takes a huge valuation lead
Bharti Airtel founder Sunil MittalBCCL
  • Airtel has been one of the resilient stocks over the last few months even as the AGR issue and Coronavirus-fueled market crash has wiped off lakhs of crores of investor wealth.
  • The Airtel stock could rally thanks to the Jio-Facebook deal and the weakening of Vodafone Idea.
  • The Airtel stock has been given a ‘Buy’ rating with a target price of ₹606, which is an upside of more than 20%.
Airtel was the market leader before the arrival of Reliance Jio, but it has since ceded its lead position to the Mukesh Ambani-owned telecom company. However, the gap between the two leading mobile service providers may be too huge, according to market experts.

When it comes to the market cap, though, Airtel is 1.6 times smaller than Jio. Vodafone Idea, on the other hand, is 39 times smaller than Jio, which is currently valued at ₹4.4 lakh crore after the Facebook deal.

Airtel shares set for a catch up rally after Reliance Jio takes a huge valuation lead

Analysts suggest that Airtel has been one of the more resilient stocks in the market even as the economic downturn and Coronavirus crisis have wiped lakhs of crores of investor wealth.

Its strong financials, the weakening of Vodafone Idea and the Jio-Facebook deal have all contributed to Airtel’s stock scaling back to its 52-week high of ₹568.


Airtel shares set for a catch up rally after Reliance Jio takes a huge valuation lead

“Airtel has been able to raise funds to meet current AGR demands. In the short-term, Airtel will be the beneficiary if there is any weakening of Vodafone Idea,” said Mahesh Uppal, Telecom Analyst & Director, Com First India told Business Insider.

“It is often forgotten that, in general, Airtel and Vodafone, being early entrants to the market, have a higher quality of subscribers, in terms of paying capacity, than their competitors. If the AGR issue does not get resolved to the comfort of Vodafone Idea, Airtel will be best placed to benefit,” he further added.

"Expects positive for Bharti Airtel after US based fund Silver Lake partner bought Reliance Jio stake at a premium. Higher valuation on Reliance Jio may positive on Bharti Airtel," saidMotilal Oswal.

AGR, short for adjusted gross revenue, is a revenue sharing agreement between the Indian government and the telecom companies. According to this agreement, the telecom companies have to share a percentage of their AGR as annual license fee and spectrum usage charges. The Supreme Court recently ordered companies to pay up a disputed amount retrospectively for over a decade. According to the Department of Telecom estimates, Airtel owes ₹35,586 crore to the government.

What are the analysts saying?

“We retain our constructive view on Bharti Airtel (Bharti) considering its ability to capitalise on the higher data demand tailwind leveraging its strong balance sheet and network capacity,” said Edelweiss Research in its report dated April 20 where it pegged the target price for Airtel at ₹606.

BrokerageTarget price for Airtel
Edelweiss 606
Angel Broking594

India is expected to add more than 150 million active internet subscribers in the next 12 months, according to IAMAI. Given the weakening of Vodafone-Idea, both as a firm and a brand, the India telecom market is narrowing down to a duopoly between Reliance Jio and Airtel.

The difference in market value of the two telcos is just too huge given the growth potential and the lack of competition.

See also:

India is changing its mobile habits and that can help Airtel and Vodafone

Airtel signs ₹7,636 crore deal with Nokia to enhance 4G network, lay foundation for 5G network

Reliance Jio’s valuation jumps more than half a billion dollars in just 12 days, thanks to Silver Lake