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Bharti Airtel world’s 3rd best telecom stock in 2019

Airtel’s $3b fundraisings and improved free cash could mitigate the risk of AGR payments.

, ET Bureau|
Updated: Dec 11, 2019, 08.46 AM IST
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The end of the telecom tariff war after five years has catapulted the Bharti Airtel stock to among the world’s best performing telecom stocks. With 55.8 per cent returns since the beginning of the year, it has become the third-best performer among the stocks of service providers and equipment makers, show data from Bloomberg.

Ubiquiti Networks, a US-based wireless data communication products firm, and China-based telecom equipment provider ZTE rank as the top two telecom stocks in the world. Bharti Airtel’s stock has outperformed the Bloomberg World Telecommunication index, a capitalisation weighted index of the world’s leading telecommunication stocks – by 45 per cent since the beginning of 2019.

The fundamentals of domestic telecom operators appear to have improved after they decided to end the regime of predatory pricing due to deteriorating financial health and excessive leverage. These companies increased tariffs for prepaid plans by 14-33 per cent with effect from early December. The adjusted gross revenue (AGR) of the telecom companies fell 10.1 per cent to Rs 1.44 lakh crore in 2018, according to data compiled by ETIG from Trai.

Airtel snip 1

The tariff hike decision by the incumbents and Reliance Jio Infocomm’s decision to participate in the tariff hike led to a rerating of the valuation of the telcos. Investors are factoring in 40-45 per cent tariff hike for the incumbent telecom operators; but given the higher risk to spectrum debt and AGR payments, investors prefer Bharti Airtel to Vodafone Idea. Besides, Bharti Airtel’s planned $3-billion fundraisings and improved free cash could mitigate the risk of AGR payments.

However, the leverage continues to be the overhang on the stock given that Bharti Airtel’s net debt to EBITDA – a measure of the ability to service its debt obligation – stood at 3.94, the fourth-highest among the world’s major telecom companies.
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