Airtel needs more than Google Drive

This is an emotionally positive development. Analysts believe that Google’s investment in Airtel testifies to its confidence in the Indian partner and will help Airtel accelerate its revenue growth from the non-mobile and commercial segments. Additionally, as analysts at ICICI Securities Ltd said in a report on January 30, “Although (Google’s) investment in Bharti is lower than that of Reliance Jio, the partnership will see Bharti compete against RJio’s JioPhone Next over the next few quarters.” will help us compete.” Investors will recall that in July 2020, Reliance Industries Limited announced 33,737 crore investment by Google for 7.7% stake in Jio Platforms.

As such, the Google deal is not expected to move the needle on its earnings significantly for Airtel. Simply put, an equity stake of 1.28% is too low for Google to become a worthwhile strategic partner. In addition, the lack of a detailed strategic plan and specificity in the partnership has deterred some analysts from reducing their earnings estimates. For example, analysts at Edelweiss Securities Ltd say they will await more information and execution before including the potential benefits of the deal in their estimates. “While the press release cites ambitious goals of accelerating the growth of India’s digital ecosystem, it does not mention specific plans. Historically, telecom operators have played an almost negligible role in handset penetration as consumers typically purchase telecom services and handsets separately,” analysts at Edelweiss said in a report on January 28.

Note that the deal also includes an investment of up to $300 million to implement potential multi-year commercial agreements. This will include investments in expanding Airtel’s offerings through innovative affordability programmes.

Against this backdrop, what are the triggers for investors in Airtel stock? “The catalyst for Airtel stock from here will be further consolidation in the Indian telecom sector and improving market share, continued strong growth in the 4G subscriber base, sharp reduction in the price of 5G spectrum, tariff hike in the postpaid segment and translation of the Indian telecom sector into the market. Strong revenues and Ebitda growth of the recent tariff hike,” said Kunal Vora, Head of India Equity Research, BNP Paribas. Ebitda is short for earnings before interest, tax, depreciation and amortization.

Airtel has outperformed Reliance Jio and Vodafone Idea Ltd on revenue growth (sequential basis) in three out of the four quarters till September quarter (Q2FY22). Analysts expect Airtel to beat its peers on quarter-on-quarter revenue growth in the third quarter as well. However, the impact of the recent tariff hike will be small. According to Vora, in 2019, when the industry had hiked prices, Airtel recorded the highest growth in subsequent quarters. Rates up to 21%. Airtel’s stock gained 6.41% in the last three months, while the Nifty 50 index lost 1.88%.

To be sure, while Airtel is best positioned among competitors, there are some risks that investors need to pay attention to. One is the reduction in the number of 4G subscribers, hurting affordability due to higher tariffs. Aggressive bidding for 5G spectrum and any disruption due to changes in JioPhone Next pricing are other risks, explains Vora.