Buy Bharti Airtel; target of Rs 684: Emkay Global Financial

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Emkay Global Financial's report on Bharti Airtel

Bharti reported a healthy performance, supported by a marginal fall in India wireless revenues. Better subscriber mix and the partial spillover impact of the Dec'19 tariff hike helped Bharti beat wireless revenue estimates. Operating leverage, despite a rise in employee cost, for the second quarter in a row boosted India margins. Management expects that some cost optimization achieved in Q1 would be sustainable. Cash generation was aided by healthy EBITDA and lower capex. A tariff hikes is crucial to improve ARPU to Rs200-300 in the medium term. Management believes that the 5G ecosystem is yet to evolve and its deployment in India is still a couple of years away. The company has now fully provided Rs476bn towards AGR penalty.

Outlook

Our estimates are largely unchanged with a ~20% tariff hike in FY21E. Bharti showcased its subscriber quality with a healthy flow-thru of the tariff hike. The stock's outperformance hinges on a further tariff hike. We retain Buy with a SoTP-based TP of Rs684.

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