Morgan raises target price for Bharti Airtel, keeps ‘overweight’ tag

The report explains the sensitivity of Bharti Airtel’s fair value to a potential 4G tariff hike over the coming months and currency devaluation in Nigeria.

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Brokerage firm Morgan Stanley has maintained the ‘overweight’ rating on Bharti Airtel Ltd and hiked its target price by 4 percent to Rs 870 a share.

The report explains the sensitivity of Bharti Airtel’s fair value to a potential 4G tariff hike over the coming months and currency devaluation in Nigeria.

Morgan Stanley believes that the recent depreciation of the Nigerian Naira on the official market will have minimal consequences for Bharti Airtel. According to a news report, Nigeria’s central bank allowed the naira to drop as much as 36 percent on the official market on Wednesday.

Airtel Africa (56.1 percent owned by Bharti Airtel) contributed 29.3 percent of consolidated revenue and 28.9 percent of consolidated EBITDA in FY23. Within Airtel Africa, Nigeria accounts for 40.5 percent of revenue and 45 percent of EBITDA. “Assuming Nigeria’s EBITDA were to fall 36 percent in dollar terms, this would impact Bharti Airtel’s consolidated revenue by 4.3 percent and consolidated EBITDA by 4.7 percent,” the Morgan Stanley report said.

In the last few weeks news reports suggest that Vodafone Idea is likely to raise funds. This has led to investor queries around tariff hikes and their potential impact on Bharti Airtel’s EBITDA and fair value. The brokerage firm also said a rise in 4G tariffs in India is factored into their base case for FY25. However, Morgan Stanley is now examining the potential effects if this tariff increase were to happen in FY24.

Morgan Stanley has outlined three scenarios in their analysis. The first scenario assumes that half of the tariff hike projected for FY25 is implemented in FY24, while the remaining half occurs in FY25 as planned. The second scenario considers the possibility of the entire tariff hike taking place in FY24 without any additional hikes in FY25. Lastly, the third scenario assumes a 20 percent tariff hike in FY24 with no further increases in FY25.

“Across these scenarios, the sensitivity to the Bharti’s India business’s EBITDA was over 4 percent to over 11 percent for F24 and over 1 percent to over 7 percent for F25. In terms of sensitivity to base case fair value, it was over 2.6 percent to over 10 percent,” the Morgan report said.