Airtel hits 3-month high; up 4% in 2 days on Rs 8k-cr 5G spectrum payment

Airtel believes upfront payment will free up future cash flows and allow the company to dedicate resources to single-mindedly concentrate on the 5G roll out\

Shares of Bharti Airtel hit an over three-month high of Rs 735.30, up 2 per cent on the BSE in Thursday’s intra-day trade, after the company paid Rs 8,312.4 crore to the Department of Telecommunications (DoT), settling 5G spectrum dues ahead of schedule to free up cash for future investments.

The stock of the telecom service provider has gained 4.5 per cent in the past two trading days. It was trading at its highest level since May 4, 2022. The stock had hit a record high of Rs 782 on November 24, 2021. In comparison, the S&P BSE Sensex was down 0.43 per cent at 60,002 levels at 12:14 pm.

Bharti Airtel, in an exchange filing, said on Wednesday that the company has paid Rs 8,312.4 crore to the DoT towards dues for spectrum acquired in the recently concluded 5G auctions.

Airtel has paid 4 years of 2022 spectrum dues upfront. The Company believes that this upfront payment coupled with the moratorium on spectrum dues and AGR related payments for four years will free up future cash flows and allow Airtel to dedicate resources to single-mindedly concentrate on the 5G roll out.

Over the last one year, Airtel has also cleared Rs 24,333.7 crore of its deferred spectrum liabilities much ahead of scheduled maturities, the company said.

Airtel management said this upfront payment of 4 years will allow it to drive 5G rollout in a concerted manner given their operating free cash flow (FCF). Airtel also has access to Rs 15,740.5 crore in capital from the rights issue which is yet to be called. With the ideal spectrum bank, best technology and adequate free cash flow, we are excited to bring to the country a world class 5G experience, the management said.

However, in the past three months, Airtel has underperformed the market by gaining 5.5 per cent as compared to 11 per cent rally in the S&P BSE Sensex.

Concern of intensified 5G-led capex has put pressure on the stock in the last few months. However, the potential FCF of over Rs 30,000 crore may still remains strong if the capex grows in the near term. We expect better valuation multiple for the stock given a consistent 20 per cent growth opportunity, low concern on 5G, and the company turning profitable with high 50 per cent plus growth due to operating leverage, analysts at Motilal Oswal Financial Services said in a June quarter result update.

"We see potential upsides for both India and Africa businesses aided by steady earnings growth. We value Bharti on FY24E, assigning 11x EV/EBITDA to the India Mobile business and 5x to the Africa business, and arriving at our SoTP based target price of Rs 910. The ensuing earnings growth, 5 per cent FCF yield, and around 25 per cent deleveraging augur well for the stock," the brokerage firm said.