CLSA sees upside for Bharti stock with Airtel Payments Bank’s rapid expansion By Investing.com

On Thursday, CLSA maintained its Outperform rating on Bharti Airtel Ltd (BHARTI:IN) stock with a steady price target of INR1,655.00. Bharti Airtel’s Airtel Payments Bank (PBL) showcased significant growth, reporting a 32% year-over-year increase in monthly transacting users, reaching 71 million. The bank’s gross merchandise value (GMV) saw a 43% rise from the previous year, amounting to approximately $40 billion on an annualized basis.

The recent quarter’s performance indicated a robust upward trajectory for Airtel PBL, with annualized revenue climbing by 52% year-over-year to Rs24 billion. The bank’s earnings before interest, taxes, depreciation, and amortization (Ebitda) also doubled, surging 102% compared to the same period last year. This financial growth comes in the wake of new account openings which have been partly attributed to the crisis at a competitor, Paytm Payments Bank.

Airtel PBL’s business model has been described as sustainable, with the added benefit of reducing subscriber churn for Bharti Airtel. The potential relaxation of credit underwriting rules is seen as a forthcoming opportunity that could further bolster the bank’s performance.

Despite Airtel PBL’s average revenue per user (Arpu) of Rs29 not being consolidated with Bharti’s mobile Arpu of Rs211 due to regulations from the Reserve Bank of India (RBI), the payments bank still contributes to the company’s value.

CLSA’s sum of the parts valuation (SOTP) of Rs1,655 for Bharti Airtel does not include the added value from Airtel PBL, even though Bharti Airtel owns a 73% stake in the payments bank. This indicates that the current valuation focuses only on the telecom services, without accounting for the financial services arm’s contributions.

In other recent news, Bharti Airtel has been a focus of various analyst firms, with several adjusting their targets and ratings on the company’s shares. Axis Capital (NYSE:) Limited increased its price target on Bharti Airtel shares to INR 1,751, citing growth in Airtel Black and an 8% rise in average revenue per user (ARPU).

Similarly, CLSA maintained its Outperform rating and a price target of INR1,540 for Bharti Airtel, highlighting a robust free cash flow of Rs119 billion in Q1 of fiscal year 2025.

Jefferies also increased its price target for Bharti Airtel to INR1,760, applauding the company’s strong performance in mobile and homes segments and better-than-expected free cash flow. Investec raised its price target for Bharti Airtel to INR1,560, anticipating a significant reduction in the company’s net debt to EBITDA ratio and robust free cash flow growth.

Lastly, Citi increased its price target on Bharti Airtel to INR1,750, maintaining a Buy rating. This adjustment follows the recent tariff hikes by competitor Jio, which are expected to be matched by Bharti Airtel soon. These recent developments indicate a positive outlook for Bharti Airtel, underpinned by the company’s strategic moves and favorable market conditions.

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