Bharti Airtel Rights Issue: On a Stronger Footing

Bharti Airtel has announced a Rs. 21,000 cr rights issue at Rs. 535 per share (14% discount to Monday’s closing price) in the ratio of 1 rights share for every 14 held, entailing 7% dilution. 25% of the amount will be called on application, with balance 75% in 2 tranches, within next 3 years, exact date yet to be decided. Purpose for the fund raise is to have a war-chest ready for making the first move to raise telecom tariffs, after gaining confidence from raising post-paid tariff for corporate users late last month. Airtel believes its life-high revenue market share of 35% is an opportune time for tariff hike, with expected ARPU inching to Rs. 200 by FY22-end, from Rs. 146 in Q1FY22.

This large fund raise of Rs. 21,000 cr comes after 2 years, when Rs. 25,000 cr was raised via rights issue in May 2019. However, this time around company is on a much stronger footing, going by the lower dilution, which stood at 22% in 2019. Also, the 2019 rights issue pricing of Rs. 220 per share was 31% lower than the then share price of Rs. 318, with an entitlement ratio of 19 for 67 shares. Thus, company’s present fund raise is not for survival, but competitive growth.

Since retail float is just about 4%, success of this rights issue will depend on institutional investors’ confidence in the company management and business prospects. Although promoters have clarified that they will subscribe to their entire share of 55.86% along with any unsubscribed portion.

This Rights issue will be seen giving a tough competition to JIO, with M Cap of Bharti Airtel will be seen rising faster than RIL.

Talk of Google likely to make a BIG investment in Bharti Airtel, will be a Full ICE BLOCK on the Cake.

This is not a Buy or Sell recommendation, while stock recommendations are provided exclusively to our paid members in the Member Zone.