The impact of the Coronavirus outbreak is likely to be moderate on Bharti Airtel as the operator’s December prepaid tariff hikes of 20-30 percent would drive near- and medium-term growth, according to a CLSA report.
Prepaid subscribers account for 94 percent of Bharti Airtel’s total 283 million subscribers and 45-50 percent of recharges are online. Although risk of lower-end subscribers down-trading and dual SIM reduction cannot be ruled out, usage spurt is also likely especially among data users (49 percent of total 283 million), the brokerage said in its report dated March 24. However Bharti Airtel’s subscriber additions and 4G data upgrades will be hit by lockdowns and contained consumers from mid-March, it added.
The Indian mobile sector has been seeking regulatory intervention on floor tariffs. Bharti Airtel’s recent submissions to the Telecom Regulatory Authority of India (TRAI) on floor tariffs imply further 50-90 percent increase in rates. Even as operator costs differ, Reliance Jio Infocomm (RJio) too is seeing about 66 percent higher per GB data realisation. Bharti Airtel has detailed need for additional Average Revenue Per User (ARPU) of Rs 80 (post Dec-19 hike).
According to a report by ICICI Securities, businesses are being impacted globally by extreme externalities including COVID-19, crude price decline and currency volatility. Also, Indian telcom companies are facing significant payment demands arising from adverse ruling by the Supreme Court on AGR dues. “We see COVID-19 having little impact on the Bharti Airtel’s mobile and other businesses; rather, with many subscribers at home and working and communicating virtually, the boost to mobile volumes is obvious. However, the significantly generous allowances in voice and data mean limited benefit. But, crude price and currency volatility do pose risk to Bharti Airtel, ICICI Securities said in its report dated March 25.
Bharti Infratel’s earnings at risk
According to a report by ICICI Securities Bharti Infratel’s earnings are at risk due to the Adjusted Gross Revenue case where Vodafone-Idea’s (VIL) status as a going concern is “uncertain”.
“If VIL shuts shop, Bharti Infratel’s consolidated tenancy, revenue and EBITDA (recurring cash) would decline by 36 percent, 32 percent and 48 percent respectively, our base case estimates. However, it will still generate Free Cash Flow (after tax and capex) at 25-26 percent of rent revenues, and its FCF yield is still 6.5-7 percent at Current Market Price,” the brokerage firm said in a report dated March 25.
“We see VIL’s exit impacting 1.4 lakh tenancies; however, some of it will be recouped as Bharti Airtel and RJio are likely to accelerate rollout to expand capacity to accommodate more subscribers. Further, existing operators’ rentals will rise on fall in tenancy as per Master Service Agreement, which should protect earnings to some extent,” it added.
―The Hindu Business Line