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Some analysts see this sector as the best bet to multiply money within a short span of time.
Stocks from across sectors have been witnessing re-ratings in recent weeks as analysts cut growth projections and price targets following the Covid-related disruptions.
But one sector has stood out, largely unaffected by the lockdown, which has helped it catch investors’ fancy.
The sector is telecom.
Some analysts see this sector as the best bet to multiply money within a short span of time. Till about a few months back, this sector was an eyesore for investors, as it was battling multiple issues, including a sudden revenue burden in the form of dues towards adjusted gross revenue of AGR.
Analysts are banking on increased data and voice usage amid the lockdown, the tariff hike late last year and projections of further tariff increase for their bullish estimates about stock prices and revenues.
“Each telco has its unique strengths and will be able to invest with much greater certitude. Hence, we expect 14 per cent CAGR telecom sector revenue growth over the next decade with capex intensity dipping to 18 per cent of sales, vis-à-vis 3 per cent CAGR revenue growth and 25 per cent capex/sales over the last 10 years,” said a report prepared by Vivekanand Subbaraman of Ambit Capital.
He is most bullish on Vodafone Idea, as he expects it to take sharp price hikes for postpaid and premium consumers in tandem with others. In his report, Subbaraman said tiering of postpaid customers is likely to help its average revenue per user (Arpu) even though the company is likely to lose market share due to its inability to match investments made by rivals going forward.
He has a 12-month target price of Rs 19 on the stock with a ‘buy’ rating, which translates into a potential upside of 248 per cent from last close. This is after the stock surged over 73 per cent from its March lows.
Sailesh Raj Bhan, Deputy CIO at Nippon India Mutual Fund, believes telecom is a very good space to be in, as earnings visibility is improving in that sector.
Vodafone Idea’s rival Bharti Airtel has lately become a favourite of analysts with most brokerages giving ‘buy’ calls. As per Reuters data, it has 16 ‘buy’ and 7 ‘outperform’ ratings from among 26 analysts, including CLSA and Morgan Stanley.
In the recently announced Q4 numbers, CLSA said Airtel’s Indian mobile revenue was ahead of estimates while Airtel Africa operations surprised positively. It has a price target of Rs 670, signalling a potential upside of 12 per cent.
Morgan Stanley has hiked the price target from Rs 575 to Rs 725 and said it is overweight on the stock. Airtel is adding a digital layer and emerging stronger in the telecom space which is a positive, it added.
The stock has been going strong in the current calendar year and is among the top blue chip gainers. It is up 31 per cent year to date and brokerages see more upside on the counter as they see “exemplary execution of its chosen strategy.”
Increasing the target price for the scrip to Rs 690 (15 per cent upside), Rohit Chordia of Kotak Institutional Equities said Bharti Airtel would emerge a winner irrespective of the direction the Indian wireless industry takes.
Ambit Capital has a price target of Rs 808 (potential upside 35 per cent) as it sees integrated telecom benefits to pay off soon for Airtel.
Ambit is also bullish on Bharti Infratel with a ‘buy’ call and price target at Rs 264, meaning a 21 per cent potential upside. However, it sees limited benefits from the surge data usage in the recent months.