Airtel stock falls over 4% on fundraising plans

Shares of Bharti Airtel fell 4.2 per cent to ~587 apiece on the BSE Sensex on Thursday because of profit-booking and concerns over the additional share-supply after the telecom services major announced fundraising plans.

The stock has corrected about 9 per cent from its record level of ~644 touched on August 16. The correction follows an over 18 per cent rally from around ~525 in July. But, despite the correction, it has outperformed the market in the past month by gaining 7.9 per cent, as compared to a 5.9 per cent rise in the Sensex.

Airtel informed the exchanges after market hours on Wednesday that its board will meet on Sunday to approve fundraising via equity, equity-linked or debt instruments or a combination thereof.

“Bharti continues to showcase its strength with healthy 4G adds, revenue mix improvement, highest-ever home broadband subscriber adds and healthy free cash flow (FCF) generation. Although the recent tariff hike for selected customers is a clear positive, the same in the mass pre-paid segment remains key,” according to analysts at Emkay Global Financial Services.

Despite high India capex in Q1, management reiterated its unchanged annual capex guidance of ~24,100 crore for FY22, the brokerage said. “We maintain our revenue and Ebitda estimates but cut PAT projection on account of the higher effective tax rate (ETR) in Africa operations.”

While the quantum and purpose of the fundraise have not been intimated, it could possibly be to deleverage the balance sheet. Thursday’s fall may have also been triggered by concerns over an increase in share supply and utilisation of the funds proposed to be raised, said analysts.

“Bharti’s capital raising announcement has come as a surprise to us as there is no immediate need to raise capital, in our view. A capital raise to enhance capacity in anticipation of large market share shifts from VIL (Vodafone Idea) could be seen positively,” said Jefferies’ analysts, led by Akshat Agarwal.

However, the brokerage added, in the past, Airtel has invested ~6,000 crore in acquiring 20 per cent stake in DTH businesses of Warburg Pincus and 5 per cent stake in Indus Towers from Providence Partners. Any potential stake increase in Indus Towers will be seen negatively.

While the potential capital raise will be a near-term overhang on the stock, Jefferies maintains a positive view and sees any related pullbacks as a buying opportunity. It has retained a ‘Buy’ rating with a price target of ~685.