Telecom major Bharti Airtel Ltd. is CLSA's top pick from within the telecom space. The brokerage reiterated its buy rating on the stock with a price target of Rs 1,040.

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CLSA's price target implies a potential upside of 30 percent from Friday's closing levels. The stock has gained 18 percent over the last 12 months and the brokerage expects this outperformance to continue in the new year as well.

For the month of October, Reliance Jio added 14.1 lakh subscribers compared to Bharti's 8.05 lakh. Reliance Jio has a total subscriber base of 42.1 crore, followed by Bharti's 36.5 crore.

Explaining the rationale behind its bullish stance, CLSA laid down five key reasons due to which it sees an upswing in the Bharti Airtel share price in the coming year.

First, it expects Bharti Airtel to lead tariff hikes to generate Average Revenue Per User (ARPU) of Rs 236 by fiscal year 2025. Over the long term, the company is targeting ARPU to be Rs 300. Bharti Airtel ended 2022 by withdrawing entry-level prepaid recharge of Rs 99 in two of the 22 circles across India.

Secondly, CLSA said that subscriber willingness to shift to postpaid plans has increased, which should be a positive for the company. Bharti’s share of postpaid customers is currently at 10 percent. CLSA noted that the current tariff differential between prepaid and postpaid offering is also at the lowest level.

Third, nationwide 5G rollouts would add upside potential to Bharti Airtel’s growth this year, and hence fuel a rally in the stock price.

Fourth, CLSA pointed out that Bharti’s consolidated gearing is comfortable at 3x EBITDA. Gearing is a measurement of a company’s financial leverage, demonstrating the degree to which a company’s activities are funded by shareholders’ funds versus creditors’ funds.

And lastly, the stock trades at 10 percent discount to its five-year average, leaving room for further rally in the share price.

Shares of Bharti Airtel are trading 2.8 percent higher at Rs 818.15. The stock is trading close to its 52-week high of Rs 860.

First Published:Jan 9, 2023 1:47 PM IST