Bharti Airtel-Good performance in difficult situation, ICICI Securities

Bharti Airtel’s (Bharti) Q1FY22 EBITDA print reflected 3% beat at Rs130bn on higher EBITDA in India mobile and impressive performance in Africa.

Bharti mobile comparable revenue and EBITDA have grown at 22% and 35% YoY without tariff hike, which is huge, and indicates continued market share gains.

Next two quarters will also have strong earnings print from the recent tariff hikes and normalisation of recharge cycle in mobile. Home and enterprise business performance continues to remain strong.

Africa, under-appreciated, growth continues to surprise positively. We like Bharti’s superior execution and rising probability of further market consolidation which should help create huge value, in our view.

Our estimates are unchanged, with target price at Rs675.

· All segments firing for Bharti:
1) Home services: Home broadband customer grew 37% YoY to 3.4mn. Revenue grew healthy 13% YoY to Rs6.5bn despite reset in ARPU; EBITDA declined 8% YoY to Rs3.2bn on implementation of license fees of 8%;

2) Enterprise: Revenue and EBITDA grew 8% and 16% YoY;

3) Payments bank: Active users up 71% YoY to 27mn and revenue grew 136% to Rs1.5bn, it has cut losses significantly; and

4) Africa: Revenue and EBITDA grew 31% and 45% YoY.

· Mobile revenue grew 22% (L2L) YoY / 1.6% QoQ to Rs143bn: Sequential revenue growth was lower considering it had an additional day due to slippage in recharges which has led to subs decline in the month of May’21; also saw 4G subs decline as well.

However, Bharti has reversed the trend in the month of June, wherein it added 5-6mn active subs and 7mn 4G subs, which is impressive.

We believe the next two quarters’ mobile revenue growth would be impressive from tariff hike taken in post-paid enterprise plans and base pack for prepaid; benefit of subs added in the month of June.

Bharti continues to gain post-paid subs, which should also help grow revenue faster.

· India EBITDA grew 3.4% QoQ / 19% YoY (L2L 27.6% YoY adjusted for Indus deconsolidation) at Rs92.7bn driven by India mobile EBITDA growth of 5.1% QoQ / 35% YoY to Rs70bn and benefited from one-off gains in network opex; this is achieved despite no tariff hike in past 12months.

Adjusted for one-off gains, mobile business incremental EBITDA margin stood at 60-65%. India EBITDA was negatively impacted from implementation of license fees in home business.

· Capex intensity sustains despite guidance of decline. India capex stood at Rs57bn (29% of revenue) which has remained elevated for the past four quarters totalling to Rs218bn.

This indicates Bharti doing accelerated capex, probably building capacity in India to benefit from any further consolidation, and for rolling out fresh spectrum bought in the previous auction.

In the past one year, Bharti has added 23k towers, 155k 4G BTS and 26k Rkms optic fibre which is also helping it grab higher market share. Despite elevated capex Bharti has achieved FCFE of Rs11bn in Q1FY22.
CT Bureau