EUR 120.00 For Business Accounts Only

MOSL: BHARTI AIRTEL (Buy)-A mammoth fund raising plan approved

Bharti Airtel: A mammoth fund raising plan approved

(BHARTI IN, Mkt Cap USD17.9b, CMP INR318, TP INR380, 20% Upside, Buy)

 

• Bharti Airtel’s (BHARTI) board has approved an INR320b fund raise, which includes a rights issue of INR250b and perpetual bonds with equity credit of INR70b (foreign denominated).
• Issue price of INR220/share implies an issuance of 1,134m rights shares, which would result in 22% post equity dilution.
• The fund raise is likely to bring down net debt/EBITDA sharply to 3.5x (FY19), as against the current estimate of 4.5x. Additionally, the plans of Africa IPO and Bharti Infratel stake sale will help raise INR400b, which should reduce its net debt to INR475b (net debt to EBITDA of 1.6x) by FY21.
• Moreover, we believe that capex intensity has peaked out, which should reduce its annual cash burn from INR169b in FY19 to positive FCF of ~INR43b in FY21, thus restricting the increase in net debt.
• In our view, despite the steep dilution, the fund raising plan is a welcome positive which will allow BHARTI to be self-sufficient and manage operations without any ARPU increase. Maintain Buy with a target price of INR380.

 

INR320b fund raising – INR250b rights issue and INR70b perpetual bonds

• BHARTI’s board has approved INR320b fund raise via an INR250b rights issue and INR70b (foreign denominated) perpetual bonds with equity credit.
• The INR250b rights issue will be raised in the ratio of 19:67 (i.e., 19 shares for every 67 shares held) at a price of INR220/share (which is a steep ~30% discount to CMP). This implies 1,134m rights shares, resulting in post equity dilution of 22%.
• Since the rights issue is at a discount, the dilution in earnings should result in a correction of the stock price from INR318 now to INR296 over the record date.
• FY19 net debt stands at INR1,148b, with net debt/EBITDA of ~4.5x. However, post the INR250b fund raise, FY19 net debt/EBITDA would come down sharply to 3.5x with net debt of INR898b.