Bharti Airtel rating ‘buy’: Robust growth across segments in Q2

Bharti Airtel is well-positioned for ROIC improvement and robust mobile revenue growth as: (i) subs migrate from 2G to 4G, (ii) it gains high-value subs, and (iii) it continues to make segmented tariff hikes. Bharti Airtel has strengthened its balance sheet with a rights issue which provides further headroom to invest in growth areas such as home broadband, enterprise and data centre. Thus, we expect consolidated revenue and Ebitda to expand at 11% and 13% CAGRs, respectively, over FY21-24e.

Robust growth across segments during Q2FY22. Key highlights: (1) India mobile revenue grew +6% q-o-q driven by +5% q-o-q in ARPU to Rs 153.4. ARPU improvement was driven by: (i) segmented tariff hikes during July 2021, (ii) rise in 4G subs by 4.4% q-o-q to 192.5m, and (iii) rise in post-paid subs by 2.1% q-o-q to 17.3m. (2) Home services segment revenue rose 9.1% q-o-q driven by subs growth of 13.9% q-o-q to 3.8m. The company is accelerating its offering to non-wired cities through an LCO (local cable operator) model which has now reached 436 cities, with overall operations in 523 cities.

(3) Airtel Business revenue rose 5.4% q-o-q to Rs 40 bn, driven by demand for connectivity, connectivity-related solutions and communication platform as a service (CPaaS). (4) Airtel Payments Bank has turned profitable as monthly transacting users rose 16% q-o-q to 31.2m and GMV rose 25% q-o-q to Rs 321 bn in Q2FY22.

Key highlights from earnings call: (i) ARPU should continue to improve driven by customer upgrades to higher-value plans as part of its ‘premiumisation’ strategy, i.e. higher adoption of Airtel Black plan, increase in post-paid subs base and migration of subs to 4G. Mgmt mentioned its data prepaid subs ARPU is 1.5-2x that of its feature phone subs base; (ii) ARPU increase of 5% q-o-q fully reflects the positive impact of tariff hikes taken during July 2021 across various segments; (iii) In the Airtel business segment, the firm sees CPaaS as one of the key growth engines – and sees India cloud communication market at $1 bn and expects it to expand at 20% annually; (iv) Capex was a bit front-loaded during H1FY22 as firm rolled out the network on the newly acquired 900MHz and 850MHz bands, but it doesn’t impact the capex outlook for FY22.

Management reiterated it won’t hold back on growth capex and the recent rights issue provides further headroom to invest in such areas. HSBC