25 Jan , 2022 By : Kanchan Joshi
Shares of Bharti Airtel surged over 1.7% in Tuesday's opening deals to Rs701 apiece on the BSE in an otherwise weak market after the company announced that the board will consider and evaluate the proposal for issuance of equity shares through preferential issue.
“Bharti Airtel's announcement to consider an equity issuance on a preferential basis has come as a surprise as there is no immediate need for capital, in our view. An issuance to usher in a strategic investor that boosts its enterprise/digital offerings will be seen positively; however, any large acquisitions will be viewed negatively," said Jefferies in a note.
Bharti Airtel on Monday notified the exchanges that its board will consider a proposal for issuance of equity capital through a preferential issue on 28th January. The quantum of the capital raise or the timing is not clear at present. The issuance will be to non-promoters implying that promoter stake in the company will get diluted post the potential issue.
While the potential capital raise will be a near-term overhang, with strong growth outlook, the brokerage has maintained its Buy rating on the telecom stock with a target price of Rs925 apiece.
Given that Bharti's business does not need capital immediately, a preferential equity issuance could be due to a strategic investor entering Bharti Airtel or an acquisition by Bharti Airtel. A strategic investor could be viewed as a positive if that investor could strengthen the company's enterprise/digital offerings in particular, as per Jefferies.
“The recent tariff hikes should help Bharti deliver 20% YoY growth in consolidated revenues in FY23 - its highest in a decade. Over FY22-24, we expect Bharti to deliver 17%/21 percent CAGR in consolidated revenue/EBITDA, assuming no further tariff hikes until 4QFY24. Given the strong growth outlook, we maintain our positive view on the stock see any related pullbacks as a buying opportunity," Jefferies' note added.