BoA Merrill Lynch upgrades Bharti Airtel to buy, flags Nigeria risk


Bank of America Merrill Lynch has upgraded No. 1 telco Bharti Airtel to a Buy, given its strong spectrum holdings, continued gain in share of the voice market and a gradually stabilizing Africa though risk of doing business in Nigeria could rise.

“Given Bharti’s improving spectrum/competitive positioning in the India telcos market, we now expect better revenue growth from FY18. Our FY18-19E EPS (earnings per share) increases by 3-6 per cent, led by scale benefits,” the brokerage house said in a report dated June 15.

Airtel stock closed the day up 2.8 per cent at Rs 351.80 on the Bombay Stock Exchange, outperforming a positive broader market.

BoFA-ML expects Airtel’s India revenue market share to be largely flat for the next four years compared with an earlier declining estimate, despite the entry of Reliance Jio Infocomm, and estimated a FY16-19 EPS to grow 20 per cent annually.

“Jio’s launch delay has given Bharti adequate time to prepare to compete with Jio. Indeed, Bharti has beefed up its 4G spectrum and has invested in analytics to selectively respond to Jio’s tariff cuts to select sub segments, rather than its entire sub base,” analysts at BoFA-ML said.

It also expects Jio to be rational in its pricing of services because of the around $20 billion investment the Mukesh Ambani company has made in its telecom operations. Jio is expected to launch full commercial services around December, while Airtel has already launched its own 4G services in over 400 towns and cities.

Further, Airtel’s currency fluctuations in Africa are reducing, and the company is also witnessing steady data growth that is driving its overall revenue growth in the continent.

“Bharti has renegotiated deals with vendors like IBM to minimize currency fluctuations above EBITDA which should likely lead to stable EBITDA numbers going forward,” the US brokerage said.

It added that Bharti is also working towards making EBITDA-capex a positive number in Africa with excess cashflow from India being used to repay debt/interest expenses.

Another recent report from the same brokerage though noted that the risks of doing business in Nigeria could rise for the company following the local government’s recent decision to fine rival MTN Group a hefty $1.67 billion (Rs 11,223 crore approx) for its reported failure to deactivate unregistered SIM cards.

The Nigerian mobile market is Bharti Airtel’s biggest revenue driver in Africa, and is reckoned to generate nearly 27 per cent of its revenues stemming from the continent. The Sunil Mittal-led telco is the second largest mobile carrier in Nigeria in terms of revenue market share, and third in terms of customers.

“In our view, the risks of doing business in Nigerian market had increased for Bharti given that its peer telco MTN was expected to pay a substantial fine,” the house said, noting that the $1.67 billion fine, though lower than $5 billion original fine, was still higher than previous ones, thus raising the overall benchmark of fines.

Bharti Airtel did not reply to ET’s email on potential business risks in Nigeria in the wake of peer telco MTN being asked to shell out a sizeable penalty.

But sources at Airtel said that the company can’t be seen through the prism of what happened at MTN.

Babatunde Akinsola
Babatunde Akinsola
Babatunde Akinsola is aNaija247news' Southwest editor. He's based in Lagos and writes on the Yoruba Nation political issues, news and investigative reports

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