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Airtel Tariff Hikes To Offset User Base Hit Due To Covid, Say Analysts

Bharti Airtel is likely to take only a modest hit amid Covid-19-induced lockdowns as the telco is slated to report medium-term growth, driven by the strong prepaid tariff hikes last December, a scenario likely to also prop up its average revenue per user (ARPU), analysts said.

They, though, expect the Sunil Mittal-led telco’s customer adds to be impacted by the pandemic, which could reduce its operating income in FY20.

“Covid-19’s hit on Bharti Airtel is likely to be moderate as prepaid tariff hikes of 20-30% in December 2019 would drive near-and medium-term growth for the company, and regrow its ARPU,” brokerage CLSA said in a note.

Prepaid subscribers, it said, account for 94% of Airtel’s 283 million subscribers and that 45-50% of the recharges are happening online.

Bharti Airtel shares were up 5.4% at 425.85 on BSE in late afternoon trade on Wednesday.

CLSA though estimates “Airtel’s subscriber adds to be hit by the lockdown in India,” and accordingly, estimates “a 1-8% cut in its operating Ebitda (read: operating income) by 1-8% for FY20/22CL”.

Analysts, however, said Airtel’s (capital) gearing is comfortable at 3 times Ebitda, despite the company having already paid Rs 18,000 crore towards its adjusted gross revenue (AGR) dues to the government.

ICICI Securities said the pandemic would have little impact on Bharti’s mobile and other businesses. “Rather, with many subscribers at home and working/communicating virtually, the boost to mobile volumes is obvious,” said the brokerage, although it noted that generous allowances in voice and data services could limit the actual revenue benefit.

Sector experts expect overall mobile sector data consumption to rise by 15% sequentially in the next two quarters if the pandemic continues for the next few months.

Analysts also expect the sharp depreciation in the rupee versus the US dollar to have a negligible impact on Bharti Airtel’s SoTP (or sum of the parts) valuation. The SoTP is a process of valuing a company by determining what its aggregate divisions would be worth if spun off or acquired by another company.

“Unlike five years back, when INR depreciation posed certain risks due to pain in Airtel Africa, the operations in the region have come a long way, in that, it positively contributes to earnings and valuation,” ICICI Securities said in a note to clients seen by ET.

Accordingly, “cross-currency rupee depreciation (INR depreciation against African currencies) positively impacts Airtel’s earnings and fair value, albeit marginally”, the brokerage added. The rupee was trading at Rs 76 to the US dollar on Wednesday.

ICICI Securities sees a dip in Airtel’s valuation due to its foreign currency debt in India, but said the risk is covered by the benefit from Airtel Africa’s value accretion. “On consolidated basis, INR deprecation does not impact Bharti Airtel’s fair value.”

CLSA added that Airtel’s recent submissions to the telecom regulator on floor tariffs also imply a further 50-90% increase in rates.

In the backdrop of the AGR payments crisis, telcos, including Airtel have urged the Telecom Regulatory Authority of India (Trai) to fix a floor price only for data services for an interim period to ensure their sustainability and keep competition alive.

Earlier this month, the Supreme Court had scrapped the self-assessment of AGR dues but agreed to consider the government’s plea on allowing impacted telcos such as Bharti Airtel, Vodafone Idea and Tata Teleservices to stagger their payments over 20 years or less. The matter will be taken up at the next apex court hearing.

Based on latest court filings, the government has estimated VIL’s dues at Rs 58,254 crore, Bharti Airtel’s at Rs 43,980 crore and Tata Teleservices’ at Rs 16,798 crore. So far, Vodafone Idea has paid Rs 6,854 crore, Airtel, Rs 18,0004 crore and Tata Tele, Rs 4,197 crore.

―Business Journal

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