Bharti Airtel Rating ‘Buy’; India wireless business showing cause for cheer

Bharti Airtel (BHARTI)’s consol. revenue was up 6% q-o-q to Rs 265.2 bn (in line on LTL). Consol. Ebitda was up 9% q-o-q to Rs 120.5 bn (5% above est.) on healthy operating leverage in the Wireless and Africa businesses. The consolidated Ebitda margin was up 190bp q-o-q to 45.5% (180bp above estimate).

Subsequently, reported net profit stood at Rs 13.5 bn. Excluding Rs 45.6 bn of exceptional cost and Rs 99 bn profit from the Indus Tower de-merger adjustment, adjusted net loss after minority stood at Rs 2.98 bn v/s –Rs 7.4 bn q-o-q (est. net profit of Rs 5.3 bn).

India Wireless Ebitda up 13% q-o-q (10% above est.): Revenue was up 6.8% q-o-q to Rs 147.8 bn (2% above est.), led by 2%/5% growth in ARPU/subs. Ebitda was up 12% q-o-q to Rs 65.8 bn (5% beat), with incremental Ebitda margins at a healthy 73%. Network opex was up just 2% despite continued investments, whereas SG&A expenses were increased by 7%, possibly to gain subscriber market share.

ARPU continued to see a steady uptick – it came in 2% q-o-q higher at Rs 166 (v/s est.Rs 164). This was led by a mix benefit from healthy 4G subs adds and revenue recovery from the COVID-19 impact. ARPU has improved 8% since Q4FY20, without any tariff hike! Subscribers jumped strongly for the second quarter in a row by 14.2 m (RJio added 1.7 m), highlighting that it has continued to gain the lion’s share of VIL’s subscriber loss.

4G subs adds were at 12.9m – the second straight quarter of high adds for the company – accounting for nearly 90% of industry adds. For the past six months, BHARTI’s pace of subscriber additions has grown robustly. Data traffic grew 11% q-o-q to 8.5 b GB (16.8 GB/user). BHARTI’s data traffic and data subscribers are ~50% of RJio’s levels, with the capacity gap much lower. This highlights a healthy network capacity and room for improvement.
Rebound in Africa nos surpasses Q1FY21 loss; Ebitda up 14% q-o-q : Africa revenue/Ebitda jumped by a strong 8/12% CC. In reported currency, it increased 7/10% to Rs 76.4/35.9 bn. Subs/ARPU was up 2%/4% as both Voice and Airtel Money saw good offtake.

Other segments present tailwinds: Home revenue/Ebitda fell 4%/8% q-o-q to Rs 5.7/3.3 bn with the recent price cuts taken to match RJio. Enterprise revenue was flat (up 1% q-o-q) at Rs 36.2 bn while Ebitda grew 5% q-o-q to Rs 13.5 bn. Passive revenue fell 47% due to the deconsolidation of Indus Towers post the Bharti Infratel-Indus Towers merger. Digital revenue grew 5% to Rs 7.9 bn while Ebitda was flat at Rs 5.6 bn.

Rise in capex slows FCF; net debt rises due to AGR Capex remained high at Rs 68.6 bn
(Rs 173 bn in 9MFY21). Operating FCF was strong at Rs 53.1 bn. 4G base stations/towers continue to see strong 31k/8k adds to 568k/207k. Net debt increased by Rs 45 bn to Rs 1,145 bn due to Bharti Infratel’s deconsolidation, which has a net cash position. Including lease liability of Rs 324 bn, net debt stood at Rs 1,474 bn, raising net debt to Ebitda to over 3x on an FY21 basis as well as interest cost by 5%.