Bharti Airtel, the second-largest telecom operator is the top pick for ICICI Securities amongst the private telcos in India. It has over 32.6 crore, wireless customers, in India and 12.8 crore subscribers spread across 14 African countries as of FY22. In India, the telco is leading in the highest average revenue per user (ARPU) segment. Currently, Airtel’s ARPU is Rs 178 and the telco has short-term plans to cross the Rs 200 ARPU levels while the medium-to-long-term goal is Rs 300. It would be achievable for the telco given that it plans to raise mobile tariffs for the consumers.
The company has seen robust growth in its B2B as well as FTTH services. With 5G in the near future, the enterprise revenues for the telco are expected to grow further. ICICI Securities believes that the industry structure of three telcos and more relief from the government and the tariff hikes on the way put Airtel in a sweet spot to maintain its strength amongst its peers. Further, Bharti Airtel has been able to raise funds pretty easily which will help the telco in delivering a formidable digital ecosystem to its customers.
SUC Decision to Help Airtel
The Indian government decided to scrape 3% floor rate on spectrum usage charges (SUC) which will make such payments zero in the long run as the SUC from the future spectrum auction has been removed.
This will benefit Airtel a lot over the long run. Then there’s also a big chunk of residual (Rs 15,740) from the rights fund which Airtel can utilise in the upcoming spectrum auction. The telco can also borrow externally at an attractive interest rate for funding the 5G auction purchases. Because Airtel has been generating free cash flows and the telco has managed to save money, there should not be a lot of debt involved for Airtel in the upcoming spectrum auction.
According to ICICI Securities, both Airtel and Jio are expected to spend around Rs 38,000 crore each for getting 100 MHz PAN-India spectrum in the 3300 MHz band, 500 MHz in the 2600 MHz band, and some 4G spectrum for coverage/capacity. The analyst has declared Airtel as the top pick with a target price of Rs 860.