Bharti’s capital raising announcement has come as a surprise to us as there is no quick want to raise capital, in our view. A capital raise to improve capacity in anticipation of huge market place share shifts from VIL could be seen positively, nevertheless any stake purchased in Indus Towers might be seen negatively. While the possible capital raise will be a close to-term overhang on the stock, with market place share shifts set to accelerate, we keep Purchase with Rs685 PT.
Bharti’s capital raising announcement… Bharti Airtel has notified the exchange that its board is thinking of capital raising plans by means of equity, equity-linked and/or debt instruments on 29th August, two days just before its AGM. The quantum of the capital raise or the timing is not clear at present. Given that Bharti’s standalone net debt/Ebitda was at 3.7x in FY21, a debt capital raise possibly significantly less probably.
…comes as a surprise: This comes as a surprise provided that (1) there are no close to term chunky repayments coming up (2) its unlikely that Bharti would be hunting to prepay its spectrum liabilities to the govt., (3) there is no visibility of 5G auctions taking location, (4) India as properly as Africa operations are FCF positive and (5) in the post final results get in touch with 3 weeks back, management had expressed that they are comfy with present leverage levels.
Thinking by means of the positives… As highlighted in our note (hyperlink), Bharti is benefiting more from Vodafone Idea’s market place share losses. If Bharti is hunting to raise capital to either generate capacity in anticipation of huge subscriber additions from VIL, or to generate buffers that can be used to obtain aspect of VIL’s spectrum at distressed valuations, then this capital raising will be seen as a positive.
…and the negatives: Over the previous year, Bharti Airtel has invested Rs 60 bn in acquiring 20% stake in DTH enterprise from Warburg Pincus (hyperlink) and 5% stake in Indus Towers from Providence Partners et al. (hyperlink) Any possible raise in stake in Indus Towers funded by means of a capital raise will be seen negatively, provided its muted development prospects (hyperlink).
Potential stock provide to be a close to-term overhang: In our view, possible equity capital raise might be an overhang on Bharti’s stock cost. This is evident from Bharti’s 6% stock fall and 30% underperformance vs. Nifty in the two months following 2.8% stake sale by promoters in May-20. However, with market place share shifts set to accelerate, we keep our positive view on the stock and see any associated pullbacks as a acquiring chance. Retain Purchase with Rs 685 PT.