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4QFY23 RESULTS: Bharti Airtel- MOFSL

India Mobile/Africa EBITDA growth slows to mere 1%/flat

  • Consolidated revenue inched up 1% QoQ to INR360b (in line), with 1% growth in India Mobile revenue and a 1% decline Africa revenue.
  • Consolidated EBITDA grew by a mere 1% QoQ to INR187b (in line), with 1% growth in India Mobile and flat Africa EBITDA. Home and Enterprise businesses saw 7%/3% QoQ growth. EBITDA margin grew 40bp to 51.9% on improvements in Home and Enterprise businesses.
  • Consolidated PAT after minority was up 89% at INR30.1b, which led to a profit of INR8.9b in JV. Adjusted consolidated PAT after minority stood at INR26b v/s INR20b QoQ (est. INR20.4b).
  • Revenue/EBITDA/PAT after minority reported strong YoY growth of 19%/24%/2x in FY23.
  • India Mobile ARPU was flat QoQ at INR193 and the number of subscribers grew 1% QoQ to 335m (added 3m v/s 6m for RJio).
  • OCF fell 3% QoQ to INR122b due to soft earnings growth and increased tax and interest. Higher capex pulled down FCF to merely INR7.9b v/s INR33.4b QoQ. Both India and Africa have seen a rise in capex. For the last four quarters, FCF has continued to decline from the peak of INR47b in 4QFY22 to INR7.9b in 4QFY23.
  • The net debt too has risen significantly to INR2.1t, with the net debt-to-EBITDA ratio of 2.8x. Excluding lease liability, it stands at INR1b.

Key highlights from the management commentary

  • Revenue grew 1% QoQ despite two fewer days in Feb’23 (after adjusting it, ARPU stood at INR195).
  • Bharti focuses on the densification of top 150 urban cities, which account for 40%/75%/90% of overall/broadband/B2B markets. It is also expanding in rural markets, which have become prospective 4G markets.
  • FY24 capex is expected to be at FY23 level, while it could come down in FY25 as the 4G rollout completes and 5G wireless capex peaks out.
  • Bharti has re-launched its ‘war-on-waste’ program, with the focus on reducing network costs and sales costs, and stopping capacity investments in 4G where it is witnessing traffic offload from 5G.

Valuation and view

  • In the near term, BHARTI earnings should soften (we build in an EBITDA CAGR of 12% over FY23-25E) due to moderating growth from 4G mix benefits, low probability of tariff hikes and softening market share gains.
  • Moreover, increased capex (factoring INR377b/INR394b in FY24/25 for 5G rollout and rural coverage) should lead to a moderation in FCF generation and the pace of deleveraging in the near term. As a result, valuations may remain under pressure.
  • However, over the next two years, it is well poised to benefit from sectoral tailwinds coming from 1) market share gains, 2) improved ARPU, led by premiumization of customers, tariff hikes, and 3) non-wireless segments.
  • We value BHARTI at INR950 based on SoTP, assigning an EV/EBITDA ratio of 10x/5x to the India Mobile/Africa businesses. Retain BUY on the stock.

For report, https://www.communicationstoday.co.in/4qfy23-results-bharti-airtel-mofsl/

CT Bureau

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