Airtel's fund raise to give ammo for 5G: Analysts

Bharti Airtel's fund raising is expected to strengthen its competitive positioning in the market and provide the telco with the necessary ammunition for aggressive 5G rollout, analysts said.

The capital raising announcement, though unexpected and surprising, would enable Airtel to enhance its market share and provides it wherewithal to make faster investment in a scenario India moves to a two-player market earlier than expected, some analysts felt.

Bharti Airtel's board on Sunday approved raising up to Rs 21,000 crore by way of rights issue at a price of Rs 535 per share.

The rights entitlement ratio entails one equity share for every 14 equity shares held by eligible shareholders as on the record date (to be notified later).

The promoter and promoter group of the company would collectively subscribe to the full extent of their aggregate rights entitlement.

The company has informed that they will also subscribe to any unsubscribed shares in the issue.

Promoter holding in the company stands at about 55.8 per cent, while public holds 44.09 per cent.

Reliance Jio's stronger balance sheet, impending 5G spectrum auction and related capex may have prompted Airtel to raise funds and is seen "positively", Edelweiss said.

The fund raise by Airtel although "was not necessary" at this juncture, but it does provide Bharti with the necessary ammunition in case of aggressive 5G rollout, the report mentioned.

"Despite 3x net-debt to EBITDA, Bharti's balance sheet was well funded, considering rising EBITDA due to market share gains and FCF (free Cash flow) generation.

"Reliance Jio's (RJio's) stronger balance sheet, impending 5G spectrum auction and related capex may have prompted Bharti to raise funds and we see it positively," Edelweiss said in its report.

While the capital increase announcement was a "surprise", it strengthens the company's balance sheet and provides good buffer to make accelerated investment in a scenario India transitions to a two-player market, Credit Suisse said in its note on Monday.

Further, the commitment from promoters can be seen positively for Bharti Airtel stock, it said.

"We think, Airtel is well placed in either of the scenarios: a two private operators sector, or three private operators post industry repair," Credit Suisse added.

BofA Securities believes that Bharti management also subscribing to unsubscribed portion sends "a strong signal".

The increased cash would help Bharti to further increase its market share as it would be able to invest in its network/branding and distribution, BofA Securities report said, adding, Airtel should also be able to fortify its 5G spectrum in the upcoming auction.

UBS, in its report said, it is of the view that Airtel's rights issue is mainly aimed at shoring up the balance sheet for 5G investments, including spectrum auction, which is likely within FY2022.

"A strong balance sheet would also position the company well to benefit from a potential VIL bankruptcy, which could lead to an influx of >100 million customers and create need for additional spectrum and capex," UBS report pointed out.

Airtel's rights issue "bodes well" as it allays concerns around promoters' intent, Jefferies said in its note.

"Bharti's rights issue announcement along with promoters' participation allays concerns around capital raising, but is a reminder that FCF generation in the standalone business is weak and requires tariff hikes/market share gains to improve," the report added.

Photograph: Sivaram V/Reuters