For Bharti Airtel's stock investors, the biggest single-disappointment since FY10 has been its inability to generate healthy free cash flows (FCF), but if we go by ICICI Securities the FCF disappointment may go away soon.
Motilal Oswal Securities sees, on the other hand, sees higher capex over the next 2-3 years but said it is bullish on the stock from a long-term perspective, even as there is a range-bought trading action in the near-term.
Bharti Airtel has barely registered any FCF after interest payments, which has capped value creation for shareholders through dividends, buybacks or simple net-debt-reduction, which boost equity value, ICICI Securities said in a note.
The lack of FCF generation could be attributed to competitive intensity, costs of building spectrum portfolio, leapfrogging in technology adoption, regulatory payouts and Africa acquisition, it said adding that the heavy-lifting on most investments is behind except for 5G network rollout.
"Thus, we have come a long way, and are close to crossing the line from where Bharti can possibly generate cashflow equivalent to 10 per cent of its current market capitalisation, and this, we believe, is just two years away. We maintain our ‘Buy’ rating on Bharti with an unchanged SoTP-based target price of Rs 960," ICICI Securities said.
Motilal Oswal Securities differs a bit, even as it continues to maintain a 'Buy' on the stock.
It said Bharti Airtel has seen decent earnings growth for the last 12 quarters, but it may witness a period of soft earnings given low probability of a price hike and high capex over the next 2-3 years, given increased investments in 5G and rural densification.
"These factors could keep the stock range-bound in the near term, though our long-term ‘Buy’ view remains intact," it said.
It said investments in 5G auction, along with AGR liabilities, have led to limited deleveraging and that the earnings growth and heavy capex may reduce FCF generation.
Motilal Oswal Securities said that the stock is trading at 6 times consolidated FY25E EV/Ebitda, with the India business trading at 9 times and Africa at 3 times. It has factored in 13 per cent consolidated Ebitda growth over FY23-25E (without factoring in tariff hike) with a 3-5 per cent FCF yield.
"Given the softness in profitability and increased capex, the FCF generation and deleveraging pace should moderate in the near term. As a result, the stock could remain range-bound in the short term. However, the improving monetization opportunity may offset
high capital intensity, driving better earnings and FCF generation in the next two years. We derive our SOTP-based TP of Rs 950 based on FY25E EV/Ebitda of 10 times for the India Mobile business and 5x for the Africa business," it said.
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