Bharti Airtel to outperform yet again

Merger of Bharti Infratel and Indus Towers (Indus) will have an impact on Bharti Airtel’s (Bharti) reported numbers for Q3FY21. This would be due to:

1) deconsolidation of Bharti Infratel (which would now be treated as a JV with equity accounting, hurting Bharti’s reported EBITDA by Rs5.5bn) and

2) Indus (erstwhile Bharti Infratel) full consolidation of Bharti Infratel and Indus. Bharti would continue to outperform with strong subs addition driving mobile revenue growth of 5% QoQ vs VIL’s 1.1%. Bharti would also show continued traction in 4G subs addition (10mn) and grab higher market share. Indus is likely to see steady tenancy adds on lower cancellations. Tata Communications’ EBITDA would dip 10% QoQ on seasonality, and normalisation of costs.

· ARPU growth driven by 4G subs addition. Bharti’s subs base is likely to grow by 9mn and that for VIL to dip by 3mn. VIL has seen deceleration in its subs decline, and we expect its subs base to stabilise in Q4FY21. Bharti should benefit from rise in MNP, which should also drive higher revenue growth. We are factoring-in ARPU rise of 0.1% for Bharti and 3% for VIL. The rise for VIL is optically higher on exit of low-ARPU subs. Data subs addition is seen at 10mn for Bharti and 2mn for VIL.

· Bharti’s consolidated EBITDA (like-to-like) to rise 2.0% QoQ to Rs113bn. Bharti’s India revenues are likely to grow 1.8% QoQ (21% YoY) to Rs192bn, led largely by mobile segment (up 5.0% QoQ / 30% YoY). Its EBITDA is expected to rise 1.2% QoQ (like-to-like) to Rs81bn. India EBITDA to be impacted (Rs5.5bn) by deconsolidation of Bharti Infratel. Bharti’s Africa USD revenues and EBITDA are likely to grow 0.7% QoQ to US$972mn and 0.7% QoQ to US$427mn respectively. We expect Bharti’s consolidated revenues to rise 1.7% QoQ to Rs262bn and EBITDA (like-to-like) by 2.0% QoQ to Rs113bn. Net loss is likely to be only Rs4.7bn.

· VIL’s EBITDA to rise 2.5% QoQ to Rs42.6bn. VIL’s revenues to rise only 1.1% QoQ to Rs109bn. This is due to continued loss of subs (down 3mn), which should start growing from Q4 itself. ARPU is estimated to increase 3% QoQ as most of the lost subs were in the low-ARPU bucket. EBITDA is expected to show a rise of 2.5% QoQ to Rs43bn. VIL to show a net loss of Rs63bn with nil tax rebate.

· Indus’ tenancies to rise by 3,700 (post-merger). Rental per tenant is likely to dip 2.9% YoY to Rs41,753. We estimate rental revenues to dip 1.4% YoY (1.8% QoQ) to Rs39.6bn on removal of equipment by tenants who have given exit notice. EBITDA is likely to dip 1.6% YoY to Rs32bn on lower rental revenues offsetting the higher energy margin. We expect consolidated net profit to drop 5.6% YoY to Rs12.5bn. The numbers presented are assuming full consolidation of the erstwhile Bharti Infratel and Indus Towers for all five quarters.

· TCom EBITDA to dip 10% QoQ to Rs10bn (excl. real estate). We expect GVS (global voice solution) revenues to drop 2.0% QoQ and EBITDA margin to be at 6.5%. GDS (global data solution) revenues are estimated to dip 2% QoQ (+4.3% YoY) on

seasonality. EBITDA margin is likely to dip 250bps QoQ to 27.1% on normalisation of recurring costs. We estimate net profit at Rs3bn. Equity Bulls