Bharti Airtel Rights Issue review (Apply)

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•    This is the second rights issue from BAL within the last two and half years.
•    May 2019 rights issue was at Rs. 220 per share for Rs. 24939 cr.
•    This time it has kept a price of Rs.535 per share (at about 20.49% discount on LTP).
•    For FY20 and FY21 BAL has been posting negative trends in its bottom lines.
•    For Q1 of FY22 it has turned the corner with net profits of Rs. 941.40 cr.

Bharti Airtel Ltd. (BAL) is the world's second-largest provider of telecommunications services, based on total mobile connections on the sum of consolidated subsidiaries (Source: GSMA Intelligence) with operations in 18 countries across Asia and Africa. Based on TRAI Reported Revenue, for the three months ended June 30, 2021, it had a revenue market share of approximately 34.9% in India calculated on the basis of AGR (including national long distance) and this ranks us second in the overall revenue market share in India. Furthermore, as of June 30, 2021, BAL served approximately 474 million customers globally. Its retail portfolio includes high speed 4G/4.5G mobile broadband, Airtel Xstream Fiber that provides speeds up to 1 Gbps with convergence across various entertainment, streaming services spanning music and video, digital payments and financial services. 

For enterprise customers, it offers a wide range of solutions that includes secure connectivity, cloud and data centre services, cyber security, Internet of Things ("IoT") and cloud-based communication. All these services are rendered under a unified brand "Airtel." "Airtel Money" (known as "Airtel Payments Bank" in India) extends BAL's product portfolio to further its financial inclusion agenda and offer the convenience of payments and money transfers through mobile phones over secure and stable platforms in India and across all 14 countries in Africa. Globally, it operates a fibre network covering over 365,000 route km ("Rkm") and in India, BAL's national long-distance infrastructure provides a Pan-India reach with 332,542 Rkms of optical fiber as of June 30, 2021.

According to TRAI, BAL is the largest operator in six telecommunication circles in terms of the number of mobile telecommunication subscribers as of June 30, 2021 - namely, Bihar, Jammu and Kashmir, Karnataka, North East, Tamil Nadu and Uttar Pradesh East - the second largest operator in seven telecommunication circles - namely, Andhra Pradesh, Assam, Delhi, Himachal Pradesh, Orissa, Punjab and Rajasthan - and the third-largest operator in eight telecommunication circles - namely, Delhi, Gujarat, Kolkata, Madhya Pradesh, Maharashtra, Mumbai, West Bengal and Uttar Pradesh West. According to TRAI, as of June 30, 2021, it was the second-largest wired broadband service provider.

As of March 31, 2020, and 2021 and June 30, 2021, BAL's total assets were Rs. 360779 cr., Rs. 346027.8 cr. and Rs. 355859.3 cr., respectively. As of June 30, 2021, promoters holding was 55.86%.

This is the second rights issue from the company. The first rights issue came in May 2019 for 1133591075 shares at Rs. 220 per share worth Rs. 24939.00 cr. At that time the ratio was 19 shares for every 67 shares held. 

To part finance its plans for prepayment/repayment, repurchase of all or a portion of certain borrowings and other liabilities of the company/subsidiaries (Rs. 15925.42 cr.), general corporate purpose (Rs. 5025.51 cr.) BAL is coming out with a rights issue (RI) of 392287662 shares of Rs. 5 each at a fixed price of Rs. 535 per share in the ratio of 1 share for every 14 shares held on the record date i.e. as of September 28, 2021.  The company mulls raising Rs. 20987.39 cr. on completion of the RI process. The issue opens for subscription on October 05, 2021, and will close on October 21, 2021. On application, investors have to pay Rs. 133.75 (Rs. 1.2 towards face value and Rs. 132.50 premium per share) and the balance of Rs. 401.25 (Rs. 3.75 towards face value and Rs. 397.50 premium per share) to be paid in two more additional calls as may be decided by the company from time to time. Post allotment, shares will be listed on BSE and NSE. BAL will be spending Rs. 36.46 cr. for the entire RI process. 

This RI is jointly lead managed by Axis Capital Ltd., J. P. Morgan India Pvt. Ltd., Citigroup Global Markets India Pvt. Ltd., Kotak Mahindra Capital Co. Ltd., BNP Paribas, BofA Securities India Ltd., Goldman Sachs (India) Securities Pvt. Ltd., HDFC Bank Ltd. and ICICI Securities Ltd. KFin Technologies Pvt. Ltd. is the registrar to the issue. 

Post issue, BAL's current paid-up equity share capital of Rs. 2746.01 cr. will stand enhanced to Rs. 2942.16 cr. Based on its RI pricing, the company is looking for a market cap of Rs. 314810.85 cr.

Post this RI, BAL's current debt-equity ratio of 1.55 will stand reduced to 1.24. Its paid-up capital will have reserves worth Rs. 77248.60 cr. post this issue. 

On the financial performance front, for the last two fiscals, it has (on a consolidated basis) reported turnover/net profits - (Loss) of Rs. 86212.20 cr. / Rs. - (33618.00) cr. (FY20) and Rs. 101258.60 cr. / Rs. - (23420.70) cr. (FY21). For Q1 of FY22, it has earned a net profit of Rs. 941.40 cr. on a turnover of Rs. 27063.40 cr. 

Company's EBITDA for the fiscal years 2020 and 2021, and the three months ended June 30, 2020, and 2021 was Rs. 34770.1 cr., Rs. 46138.5 cr., Rs. 10118.3 cr. and Rs. 13189.5 cr., respectively. BAL's EBITDA margin for the fiscal years ended March 31, 2020, and 2021, and the three months ended June 30, 2020, and 2021 was 41.1%, 45.9%, 43.4% and 49.1%, respectively.

The scrip (code 532454) last (cum-right basis) quoted at Rs. 739.20 on September 24, 2021, and turned ex-right at Rs. 732.00 on September 27, 2021. Since then, it has posted a high/low of Rs. 732.00/Rs. 667.90 with the last trading price (LTP) of Rs. 672.90 on October 01, 2021. Based on this (LTP) closing, its market cap amounts to Rs. 395955.55 cr. The scrip has posted the last 52 weeks high/low of Rs. 739.10 / Rs. 386.96.

Conclusion / Investment Strategy

BAL is the second-largest global player in telecom services. It is coming out with a second rights issue within 30 months. Its market performance has been improving with net profits for Q1 of FY22. This RI is at around a 20% discount based on LTP. Investors may consider an investment with a long term perspective considering bright prospects in coming years with Digital India initiatives.

Reviewer recommends Subscribing to the issue.

Review By Dilip Davda on Oct 1, 2021

Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at its own risk. Investors should bear in mind that any investment in stock markets is subject to unpredictable market-related risks. The above information is based on RHP and other documents available as of date coupled with market perception. The author has no plans to invest in this offer.

(SEBI registered Research Analyst-Mumbai).

About Dilip Davda

Dilip Davda, a freelance journalist

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.


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